China ICO Ban: Arguments
From now on, no organization or individuals in China would be allowed to raise funds via an initial coin offering ICO as they have “disturbed the economic and financial order seriously” according to a regulation document confirmed by Caixin on September 4.
ICOs are meant to provide startups with the opportunity to raise funds for projects borne out of good ideas.
However, the ICO craze has heightened globally to the attention of regulatory authorities and China, where a large proportion of crypto-related trading are recorded, would seem the first to introduce such a measure (most ICOs are not officially allowed in the US).
Since the news came out, the implications of deeming ICOs as unauthorized and illegal forms of public fundraising in China hence their temporary ban according to the document, which the People’s Bank of China notes is jointly released by seven ministries and commissions, is still being considered on the entire crypto market. The bitcoin price dipped briefly but has since recovered.
So far, the first blockchain-based ICO platform in China, Bizhongchou, and BTCChina have announced suspension of new ICO projects on their platforms in compliance with the new regulatory requirement. Also, the values of China-focused platforms that are ICO-related have dropped e.g. NEO though they have started regaining strength.
While the decision to ban these crowdfunding activities is being contested, it is worth noting that there are too many ICOs now and their emergence seems to be causing an unhealthy fear that their lack of regulation could lead to many people losing money. It could create a tendency for a lot of less tech-savvy people who are not knowledgeable in crypto-related issues to be affected. This is because not all startups that raise funds through this method survives the market. Their success depends on the usefulness of their products/services on a long term basis instead of the short term goal of raising as much funds that some of them tend to now focus on.
Rather than spending more to come up with comprehensive whitepapers, build convincing prototypes and educate on their core competencies, it’s been argued that some of these new startups now spend more on marketing campaigns including involving celebrities to draw needed attention to their ICOs. While it could be seen from another perspective as helping mainstream adoption, the list of celebrities pitching for an ICO has been rising from boxer, Floyd Mayweather to hotel heiress, Paris Hilton, or rapper The Game.
As a technologically-advanced country and one of the early crypto adopters, China’s move could be interpreted to mean a clarification on whether most ICOs feed off people’s greed and ignorance and not informed choices.
Arguments over ICO ban
Two sides have emerged to the decision to place a ban on ICOs in China. Going by the arguments that most ICOs are now being seen as get rich schemes with little or no use, there is a view that justifies the ban as a means to see that the needed regulation in raising fund from the public is put in place. This takes from the outcome that self-regulation by startups have not worked out well due to the low level of understanding of cryptos by many people that may have been attracted to their campaigns – though the level of knowledge in cryptos/blockchain has increased in recent months.
The measure is expected to instil some sense of responsibility in most startups seeking to cash in on the ICO hype since there isn’t an established entity that regulates the conduct of ICOs and introduce limited restriction.
The ban is also justified by the fact that it has nothing to do with bitcoin but rather an attempt to prevent a reoccurrence of the dotcom rush which left many unhappy till today.
On the other hand, there is the belief that the ban is unnecessary and could be seen as a way of giving power back to the government. It may also not likely be effective bringing into play the decentralized nature of the technology behind cryptocurrencies against government’s centralized system. With the self-education each crypto enthusiast has acquired in the industry including risk management in investment decisions, proponents believe ICO regulation will come on its own – from within the community – and not necessarily from the government. It is hinged on the fact that not all ICO are scams and the support of the entire community is crucial. They support that cryptocurrency is synonymous to community and ICOs help a larger section of people globally to wrestle the power to participate in markets they were unable to access previously from a small group.
Olusegun Ogundeji writes on tech-related issues including from the crypto/Blockchain space.
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