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People’s Bank of China, the central bank of the country, has officially declared initial coin offerings (ICOs) as an illegal method of raising money. In an official statement, the PBoC announced that organizations and individuals are no longer permitted to conduct ICO campaigns and token sales.
Blockchain projects and startups that have recently completed their ICO campaigns were requested by PBoC to refund bitcoin and Ethereum raised during their ICOs to protect investors. CnLedger, a local bitcoin and cryptocurrency news source, wrote:
“PBoC bans ICOs. From now on, no organizations and persons in China are allowed to raise funds via ICOs. Fund-raising platforms are not allowed to provide trading and exchange services. Raised funds should be ‘cleared up’ and refunded to protect investors.”
Several blockchain projects including Health Mutual Society have already refunded all of the funds they have raised in bitcoin and Ethereum over the past few months. The Health Mutual Society development team said in a statement:
“To cooperate with relevant ministries in China in the investigations and the reorganization, HMS hereby decides to cancel the ICO on ICOINFO and put further operation on hold indefinitely. The fund collected will be returned to supporters’ accounts. The refund schedule will subject to ICOINFO’s announcement.”
The impact of the Chinese government’s abrupt crackdown on ICOs and strict regulation of the market has been evident on the price trend of Ethereum, bitcoin and the entire cryptocurrency market. The market cap of Ethereum declined by a staggering $6 billion within a 24-hour period, while bitcoin price dropped by $200.
What Will Happen With the Global ICO Market?
With the US Securities Exchange Commission (SEC) and the PBoC launching full investigations to any company, organization and individual raising funds through ICOs and token sales, the global ICO market and ecosystem will likely change drastically in the upcoming months.
Like EOS, the most successful ICO in history which raised over $180 million during its campaign, the vast majority of blockchain startups will relocate to Switzerland and other countries like the UK that have friendly regulations toward blockchain companies. In its ICO campaign, EOS published a document entitled “Token Purchase Agreement” which read:
“EOS Tokens do not have any rights, uses, purpose, attributes, functionalities or features, expressed or implied. Although EOS Tokens may be tradable, they are not an investment, currency, security, commodity, a swap on a currency, security, or commodity or any kind of financial instrument.”
That specific statement from the EOS development team rid the startup of any potential conflict with the SEC along with its strict policy that did not allow US-based or accredited investors to take part in the EOS ICO campaign.
Chinese blockchain startups can follow the roadmap of EOS and relocate to more regulation-friendly countries. With strict guidelines that disallow investors from the US and China in participating in ICOs, blockchain startups can safely, without running in conflict with financial regulations and policies, conduct ICO campaigns.
In May, Bitcoin and security expert condemned central banks and government entities that were preventing bitcoin and cryptocurrency startups from making progress and growing at a rapid pace. At the time, Antonopoulos noted:
“Governments can choose to either do nothing – which is okay; make things worse for cryptocurrency trading – like what Australia did by imposing sales taxes on all cryptocurrency transactions; or they can make things easier for companies by reining in the banks and encouraging companies by creating a level playing field.”
A similar situation may occur with China and the US. Within the next few months, blockchain startups will simply leave the two countries and complete their ICO campaigns elsewhere.