China’s Stricter Regulatory Stance on ICOs Signal Caution, Not Calamity
On February 4, 2018, at 10:10 p.m. China Standard Time, Financialnews, a rather small news service under the administration of China’s central bank, the People’s Bank of China (PBOC), released an article that explicitly stated that “China will continue to watch virtual money and actions related to it tightly, and will take action involving shutting down commercial presences and exchanges within China’s land to uphold China’s financial stability.”
More to the point, both the Xinhua News Agency (the country media organ) and the news site of the Chinese authorities website reposted the information, further confirming its authenticity.
The announcement reads:
“Since the combined statement of September 4, China’s regulator still finds that many Chinese have started to run tasks regarding cryptocurrency overseas. Thinking about the risks of trading overseas that Chinese can face, the regulator will take more measures.
“The risks which have been mentioned by the joint announcement still exist: illegal ICOs, fraudulent jobs or even Ponzi schemes. If investors are contemplating jobs set up abroad, the risks will be higher since the losses are extremely tricky to recover.
“According to this origin of PBOC, China’s regulator will embrace a set of regulatory measures including banning related commercial presences and shutting down exchanges at home and abroad to prevent financial risks and to safeguard financial stability. No exchange ought to be an exception. In the meantime, the possibility of introducing further regulatory measures should not be ruled out”
However, it is not yet clear what those additional regulatory measures are, as China is still working to figure out the most effective ways to regulate the cryptocurrency market.
How Can We Interpret China’s Latest Policy Signals?
Since BMI has reported, bitcoin trading or cryptocurrency trading can’t only be prohibited by any single government because of the decentralized nature. Banning it will only result in uncontrollable OTC trading which may result in longer hidden-capital flight. This is the last thing the Chinese government may want to view; hence, the coverage should be considered more as a sign to bully bad actors and also to frighten prospective investors of all associated risks, rather than distributing it because the Chinese administration’s final attitude toward blockchain innovation and technology.
The tightening of policy would be to be anticipated, not just because present ICO projects tend to lack the required transparency in both job information and the financing period, or because risks related to the security of assets on exchanges abound. The Chinese ruler has also come under fire recently for its slow response in other instances outside the blockchain market. By way of instance, it’s been criticized for not clamping down on Ezubao — a fraudulent peer-to-peer lending firm that inflicted a fantastic financial loss of $7.6 billion on everyday investors in 2014.
Most recently, it has failed to tackle the problem of “campus financing” companies offering college students with apparently simple access to loans in the state that they provide nude photographs, which the companies later use to threaten the students to repay the higher-than-normal interest. News of pupils who commit suicide as they are unable to repay the money have been surfacing virtually every week.
It’s very likely that China’s regulator is going to want to move a step ahead prior to any such extreme instances can occur in the cryptocurrency industry.
And Then There Is Blockchain Technology …
China’s national plan and local development programs imply that China still publicly supports blockchain technology. (See our post Op Ed: China’s ICO Ban Is Characteristic — Not Catastrophic).
It might seem that the government remains observing whether the business will really fulfill its revolutionary guarantees and is deciding the best method to promote innovation while at the same time preventing speculation dangers.
For the blockchain business to be successful, it must acquire regulators’ confidence by really solving commercial pain factors to establish that token-oriented versions are feasible, particularly employing the token-economy company model. If no undertaking can establish that and tokens still stay a tool of pure speculation, or perhaps cause of fiscal uncertainty, it remains highly unlikely that the Chinese authorities (or another authorities, for that matter) will soften its regulatory position.
The onus, therefore, sits directly to the crypto strength and blockchain community to fulfill its promise and provide the invention which the modern world wants and expects.