China`s Central Bank`s ban on the holding of ICO (IPOs cryptocurrency tokens) may lead to an outflow of investors to other Asian markets, and to Russia as well, but in the future the Chinese government may introduce regulation and re-authorize the ICO, DTN interviewed experts believe.
On September 4th, the Central Bank of China banned ICO due to financial risks. The regulator affirmed that the ICO is a kind of unauthorized and illegal fund-raising, which may be associated with scams and financial pyramid schemes. Starting Monday, all ICO operations were to be terminated, the ICO-platforms should not be involved in the currencies, virtual coins, etc. exchange services.
ICO risky business
In the cryptocurrency market, by analogy with the term IPO (initial public offering), the concept of ICO (Initial Coin Offering) arose – the initial placement of coins for cryptocurrencies. Unlike IPO, companies that want to attract capital, instead of shares, issue digital tokens. Since ICO implies the release of tokens, the company should work with blockchain technology.
Unlike an IPO, one can invest in ICO tiny amounts as well – one token can cost a few cents. Thus, anyone who has a crypto-currency purse on any platform can become an investor. In IPO investors acquire a stake in the company, become its co-owners, while ICO participants receive only an internal coin.
Another important feature of ICO is the lack of its legal status: investors are not legally protected in case of company failure in the market. This is the reason, according to analysts, why the regulator banned the ICO.
“The ICO prohibition ICO is mostly due to the fact that there are a lot of uncontrolled fraudsters in the community, the Chinese authorities also do not approve the money withdrawal from the country, I see it as a part of their control over the capital movement,” said to DTN the Brave New Coin technical resource analyst Josh Olszewicz). https://bravenewcoin.com/authors/josh-olszewicz/
“Due to the lack of regulation and supervision in this area, investors do not have any legal protection under the ICO, moreover, it is not even required that the tokens issuing companies were legally registered. Therefore, in our estimation, the vast majority of ICOs have significant fraud and deception potential.We advise clients to avoid investment with ICO, “said Julius Baer analyst Alberto Perruccini.
The ban will lower investors` amount.
Currently, according to estimates, China’s share in the ICO market ranges from 15% to 40%. “It’s impossible to know exactly what proportion of Chinese ICOs are on the global scale, I suspect that 30% -40% of ICO investors around the world are Chinese. The ICO trading volume (after the ban is introduced) will continue to grow rapidly in South Korea and Japan. Each of the two countries, perhaps, owe the largest parts of the ICO global trading volumes and large cryptocurrencies, such as Bitcoin and Etherium, “said the head and co-founder of BitMEX cryptocurrency exchange, Arthur Hayes.
Josh Olszewicz believes that China owes at least 15% of the ICO market. “The Central Bank of China had strict rules in January 2017, which destroyed most of China’s trade volume. The ban is enough to frighten everyone who does not know anything, “Josh said.
“The share of the Chinese in the ICO is not very large, primarily because they still live in the paradigm of “stealing what works in the West”.
Regulation will return interest to China
Experts believe that in the long term, the ICO regulation should and can appear in China, in this case the investors’ interest to the Chinese market will return. “The rules should appear in relation to the ICO, in order to calm the situation a bit …. There will probably be additional rules regarding the ICO accounting and structuring,” Olszewicz said.
“This prohibition will not be prolonged, China tried to ban bitcoin in 2013, excluding the possibility of banks to handle yuan related to the exchange of bitcoins.” Big exchanges found a detour, and less than 5 years later, bitcoin costs 4 times more. “The ICO market will experience” nuclear winter “, but will become stronger and more reliable,” – says Hayes.