China declares ICO fundraising illegal

China declares ICO fundraising illegal

After hitting record highs over the weekend, Bitcoin and a host of other cryptocurrencies slumped on Monday after China's central bank said all "initial coin offerings" are illegal and that any such activity should be blocked immediately.

NEO, a Chinese-based competitor to Ethereum, was even more drastically affected, losing more than 27% of its market cap ($1bn at time of writing).

The People's Bank of China said it has completed investigations into organizations and individuals who have conducted ICOs, and have ruled that the financing activities disturb financial order and shall be banned. The number of ICOs in China has also risen sharply with 65 ICOs raising nearly $400m from 105,000 individuals so far this year.

Hong Kong's financial regulator has said that "initial coin offerings" are likely to fall under securities laws, a day after both China and South Korea announced a crackdown on the controversial fundraising mechanism.

Bitcoin had a rough start to this week, dropping as much as 20% from a record high of almost $5,000 per coin hit over the weekend. In July, the U.S. Securities and Exchange Commission warned that digital currencies issued through ICOs may be classified as securities depending on the issue terms, and thus could be subject to regulations.

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Financial experts say ICOs range in quality from serious (if overambitious) attempts to build new digital currencies, to projects that are little more than pyramid schemes.

"Any so-called tokens financing trading platform shall not engage in the exchange of legal currency and tokens, "virtual currency", and may not be traded or sold as a central counterparty to sell tokens or "virtual currency", the bank states".

ICOs have been hyped as the next big thing in the world of cryptocurrency.

For the buyer, therefore, the main reason for buying these highly risky tokens is often simply a bet that their value will rise. In an ICO, companies issue cryptocurrencies in exchange for currencies of a more liquid value such as Bitcoin, in an IPO, people get shares in a company.

The popularity of coin offerings has surged in China this year.

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