China’s blockchain industry looks overseas as ICO blanket ban stirs fear

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China’s cryptocurrency speculators have had one hell of a week. Since the Chinese government’s announcement on Monday banning all token crowdsales – also known as ‘initial coin offerings’ or ICOs – the country’s blockchain community has scrambled to comply.

ICO platforms where companies list their crowdsales, like Icoinfo and Icoage, have halted their services. Domestic exchanges have taken down tokens from ICOs, forcing investors to withdraw. Even a bitcoin conference in Beijing was affected by the new regulations – the company postponed the event and moved it to Hong Kong.

“Though there will be no ICO related content [during] the summit, we decided to change the time and location of the summit to lower the risks of being canceled,” wrote cryptocurrency startup BitKan, the conference organizer, in an email statement.

In China, the gold rush is over – for now.

The global ICO market, where blockchain startups issue their own digital tokens to investors via crowdsale, has seen an explosion of capital this year. According to industry publication CoinDesk, companies around the world have raised a total of more than US$1.7 billion via ICOs. With little more than a conceptual white paper, blockchain startups have been able to raise millions of dollars worth in cryptocurrency – sometimes as quickly as less than a minute.

In China, however, the gold rush is over for now. Concerned about financial instability, fraud, and disorder, the Chinese government has stepped on the brakes. New rules prohibit new ICO projects from launching and require completed token sales to refund their investors.

See: Everything you wanted to know about ICOs but were too afraid to ask

How and when companies refund clients remains unclear. The ambiguity of China’s blanket ban on ICOs has made it difficult for companies to assess next steps, forcing many to play it safe. BTCChina, one of China’s largest cryptocurrency exchanges, has stopped trading ICOCOIN, the only ICO-related token on its exchange. Some international blockchain startups that have raised token crowdsales this year – especially those significantly backed by Chinese investors – are taking precautions by offering refunds.

Registering an entity overseas is an option for domestic firms, especially in blockchain-friendly markets like Singapore, Switzerland, and Estonia. For instance, Bodhi, a blockchain-based prediction market company, is choosing to register in Singapore to continue operations, according to a statement released to its investors. Its development team will be based in Silicon Valley. Chinese investors who bought its token via ICO platforms will be refunded.

The ambiguity of China’s ICO ban has made it difficult for companies to assess next steps.

“The effect [of the ban] must be watched slowly. Every day is different,” explains the spokesperson of a Beijing-based blockchain startup, who requested anonymity due to fear of repercussions from the government. The company hasn’t launched an ICO but has invested in others. Now, they’ll wait and see what happens.

“Because the government has no way of effectively monitoring ICOs, they’ve stopped them from happening at all,” she explains. As the market develops, it has simultaneously spiraled out of control, so they had to stop it entirely.

Crossing borders

Meanwhile, cryptocurrency holders are rushing to withdraw tokens from exchanges and transferring them into digital wallets, as Chinese exchanges might halt withdrawals in the future. Scrutiny from the People’s Bank of China over capital outflows forced the country’s largest exchanges, such as Huobi and OkCoin, to temporarily stop withdrawals in February.

In various cryptocurrency chat groups, investors heatedly discussed the fate of their investments, with some reluctant to receive refunds. Though most acknowledged the need to purge the ecosystem of illegitimate and risky ICO projects, many worried that good projects would be unduly affected – and that Chinese investors would be left out from participating.

“Excellent overseas projects like Status, TenX, and OmiseGo have inexplicably been attacked,” Roland Sun, partner at Shanghai-based law firm Broad & Bright and legal adviser of several blockchain projects, posted on WeChat. “They had nothing to do with illegal fundraising in China, yet they’ve been mixed in with the rest and trampled on.”

Yesterday, OmiseGo released a statement assuring backers that its product, an open-source cryptocurrency wallet, would not necessarily be affected by China’s ban on ICOs. TenX told Tech in Asia that they didn’t think the ban would affect them, after consulting with legal experts, investors, advisors, and their community.

To be sure, the ICO craze can continue with or without China – that is, pending stricter regulations from other countries. The US, for instance, already has strict rules around financial securities, which can include digital tokens, depending on their terms and conditions with investors. Singapore also laid out new rules in August, which require companies to register a prospectus with the Monetary Authority of Singapore before their crowdsale if their tokens match regulators’ definition of a security.

Though the price of Ether, the digital token often used to purchase tokens in crowdsales, dropped by about 15 percent by the end of day on Monday – when China’s blanket ban on ICOs was announced – it has since recovered to about US$325, according to Coinmarketcap.

The ICO craze can continue with or without China.

For now, Chinese cryptocurrency holders that want to participate in token crowdsales must do so via overseas platforms – at their own risk. ICO platforms may also shift their attention abroad. One overseas ICO investment services company that has operations in China said they expected the market to move forward outside of China, and would change their focus to other international markets in response to China’s new regulations. They requested anonymity due to the sensitivity of the subject matter.

As the blockchain-based crowdsale model matures, increasing regulation worldwide may be inevitable. After all, basic protections for investors and standard know-your-customer (KYC) and anti-money laundering (AML) processes could help weed out unreliable projects and bolster the industry in the long term.

“If you’re scamming investors, especially non-sophisticated investors, and/or are not in full compliance with the KYC and AML laws in the jurisdictions in which you operate, you’ll be shut down,” says Zach Piester, chief development officer at Intrepid Ventures, a Hong Kong-based venture capital firm that focuses on blockchain startups.

“This is not specific to China,” he adds.

This post China’s blockchain industry looks overseas as ICO blanket ban stirs fear appeared first on Tech in Asia.

from Tech in Asia https://www.techinasia.com/china-ico-ban-uncertainty
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