Chinese ICOs Move to The Shadows
China’s blanket ban on initial coin offerings may have made it illegal for startups to maintain initial coin offerings (ICOs) and also for investors to contribute to them, but it’s not quashed excitement among investors for crypto token investments. Chinese ICOs continue to function, but now they do so from the shadows.
ICO investing conventions hosted in mainland China utilized to attract countless investors. The PBoC also required startups who’d previously completed ICOs to return all funds to contributors. Not long afterwards, domestic bitcoin exchanges started “voluntarily” shutting down, citing the PBoC advice on ICOs.
But, as the Wall Street Journal reports, ICO investing conferences have not ceased in the mainland. They continue to operate in secret and target wealthy investors willing to fulfill investment minimums as high as $100,000. It is impossible to measure the extent of these strategies, but anecdotal evidence indicates they stay quite ordinary.
“You can close the exchanges, but you can’t shut off the demand for such investment products,” BitKan CEO Leon Liu is cited as saying. “The government doesn’t have any way of policing offline sales” of cryptocurrencies and related investments.
The Journal describes one such underground sales pitch, held in a Beijing golf club just days after Chinese ICOs were outlawed. A Ms. Zhang delivered a sales pitch to a set of six affluent investors, urging them to invest in a “wealth currency” known as REC that comprised a subsidiary cryptocurrency called R-coin. Investors could realize 40-fold profits in just two to three decades, she said. Cryptocurrency “only rises, doesn’t fall,” a movie presentation added.
The Journal was not able to verify the existence of R-coin or the validity of REC’s operations, highlighting among the inherent issues with blanket bans. Whereas regulatory agencies in different areas of the world — like the SEC from the U.S. — have thus far reverted their interventions to jobs considered to be scams, the Chinese have made no effort to differentiate between valid — albeit risky — investments and investments that are outright fraud.
As Leon Liu stated, China’s ICO ban will not eliminate need for cryptocurrency investments. Although it might be promoted as a way to protect investors from scams, it appears it will have the contrary effect.