On Monday, China banned individual as well as groups from raising funds via initial coin offerings or ICOs, or the launching of digital currencies, explaining that the practice was equal to illegal fundraising.
ICOs have created a bonanza for entrepreneurs in the digital currency industry, both globally as well as in China, giving them the ability to raise large amounts of money quickly through creating and then selling digital tokens with little or no oversight.
Individuals as well as organizations that already have completed fundraising using ICOs should make arrangement to have the funds returned, said a statement released by the People’s Bank of China, the banking and securities regulators and other departments within the government and posted on the bank’s website.
The prices of ethereum and bitcoin, two of the biggest cryptocurrencies dropped following the government’s announcement.
An analyst with a Shanghai based tech consultancy said he suspects regulators had put the brakes on the ICOs to give them time to better understand this new phenomenon but could back off down the road.
Globally regulators are struggling trying to understand what the ICOs are, the risks they involve and had to put a fence around them so they can be regulated, said the analyst.
China is not any different in a number of ways than the United State or another nation in saying there needs to be a push back on ICOs currently until it is determined how they can be dealt with. He added that he believed the measure in China would only be temporary.
This year the coin offerings in China have surged in popularity.
In July, Xinhua the state run news agency, cited data gathered by a government organization that monitors financial activity online to report there were 65 ICOs thus far since January that have raised over 2.62 billion yuan or $394.5 million from approximately 105,000 people.
The music is on hold, said one chat group member on WeChat, the giant social media platform in China. The chat room had been established for an ICO that was to launch soon for SelfSell a fundraising platform.
The organizer of that ICO, who recently started a campaign visiting six cities, said that the project was suspended.
An industry analyst said that the new rules were not apparently aimed at investors in China, who still would be able to take part in ICOs that are offshore.