The Chinese government has banned initial coin offerings (ICOs), claiming that businesses raising funding through offers of virtual coins or tokens are engaging in “essentially a form of unapproved illegal public financing behaviour”.
The government has also suggested that ICOs “raise suspicions” of financial fraud and other criminal activity, and is warning Chinese companies that have raised money through ICOs already – as much as $766m in July and August according to the Financial Times – that they must refund the money to investors.
While some Silicon Valley thinkers have been suggesting that ICOs will ultimately overtake traditional venture-capital investment in the startups world, regulators around the world have been worrying about the lack of oversight in ICOs.
Just last week, the SEC in the US warned that some companies there are using ICOs as cover for ‘pump and dump’ share-manipulation schemes. “While these activities may provide fair and lawful investment opportunities, there may be situations in which companies are publicly announcing ICO or coin/token related events to affect the price of the company’s common stock…”
Even the lawful opportunities are now banned in China, although that may merely shift ICO activity elsewhere.