Bitcoin drops on ruling

Bitcoin tumbled the most since July after China’s central bank said initial coin offerings are illegal and asked all related fundraising activity to be halted immediately, issuing the strongest regulatory challenge so far to the burgeoning market for digital token sales.

The People’s Bank of China said on its website it had completed investigations into initial coin offerings and will strictly punish offerings in the future while penalising legal violations in ones already completed.

The regulator said that those who have already raised money must provide refunds, though it didn’t specify how the money would be paid back to investors. It also said digital token financing and trading platforms are prohibited from doing conversions of coins with fiat currencies.

Digital tokens can’t be used as currency on the market and banks are forbidden from offering services to initial coin offerings.

“This is somewhat in step with, maybe not to the same extent, what we’re starting to see in other jurisdictions — the short story is we all know regulations are coming,” said Jehan Chu, managing partner at Kenetic Capital in Hong Kong, which invests in and advises on token sales. “China, due to its size and as one of the most speculative IPO markets, needed to take a firmer action,” he said.

Initial coin offerings are digital token sales that have seen unchecked growth over the past year, raising €1.35bn. They have been deemed a threat to China’s financial market stability as authorities struggle to tame financing channels that sprawl beyond the traditional banking system.

Widely seen as a way to sidestep venture capital funds and investment banks, they have also captured the attention of central banks that see in the fledgling trend a threat to their reign.

The central bank’s directive made no mention of cryptocurrencies such as ether or bitcoin.

There were 43 initial coin offering platforms in China, according to a report by the National Committee of Experts on the Internet Financial Security Technology.

Sixty-five ICO projects had been completed, raising €335m. “This is a positive move given the rapid proliferation of low quality and possibly fraudulent coin sales promising the moon,” said Emad Mostaque, chief investment officer at Capricorn Fund Managers.

Bloomberg