Why we shouldn’t fear the dragon’s snap

Why China’s temporary ban of ICOs is not a deterrent to the blockchain community

After seeing our managed portfolios fall over the last few days, there is an unexpected calm in the office given the hysteria surrounding cryptocurrency markets on the back of news from Beijing.

To say that the outright ban of ICOs by the People’s Bank of China was not expected is somewhat wide of the mark. The withdrawal of the much anticipated Red Pulse ICO from the Chinese market was a massive indicator of a the regulatory noose tightening, and given the noises from the SEC in America, it seems that it was only a matter of time before a heavy handed approach to regulating the ICO market was upon us.

China is a huge market for cryptocurrencies and the blockchain economy alike. This cut off of potential money for ICOs has been deemed worrying by many cryptocurrency holders – the market capitalisation of all cryptocurrencies fell by $38bn – and the sell off has led to a dip in the value of bitcoin, ethereum and pretty much every other cryptocurrency and token out there.But let’s look at the ban in context.

China has banned all ICOs within its jurisdictional boundaries. Admittedly, circa 1.4bn people are affected by this and this adds further friction to a fledgling market whereby potentially world changing ideas may go unfunded by a mechanism that allows money to back them without geographical or regulatory hurdles. However, this ban is temporary. China is known to take a very risk averse approach to advances in monetary markets, so is a ban on ICOs really an unexpected blow to the blockchain economy? Furthermore, the ban is temporary and is in place whilst the People’s Bank gets a better handle on the market.

The ban does not really have an effect on other jurisdictions. There does not appear to be a blanket ban on citizens of China investing in ICOs, they merely cannot run one from within China’s borders.

The blockchain economy and the distributed ledger system that underpins it is, by its very definition, ‘post jurisdictional’ – for regulators to stop an international movement from working would be nearly impossible and would take decades to implement due to egotistical, geopolitical posturing and differences of opinion.

Every time a regulatory body clamps down on the blockchain economy, the players in the industry merely move to other jurisdictions who are happy to have them and the tax revenues, multiplier effects and wealth creation that blockchain projects bring. A point blank ban on ICOs is yet another barrier to good ideas getting the funding that they deserve.

However, please don’t misconstrue my opinion of the ICO market. It is very much in its infancy and has issues not unlike those seen in the dot com bubble. It is worth remembering that the dot com bubble was regulated by authorities in all major jurisdictions, but this did not stop it becoming a bubble either. The best way to navigate such a market is through due diligence, proof of concept and making sure that the projects you place money in have a real world application which can be monetised.

The Block Venture Project is a step towards a better market. Although the ICO market is still full of friction and George Akerlof’s ‘market for lemons’ is very much in practice, BVP intends to tackle such frictions through aggregation of buying power to get a better look at projects who want financing. A whitepaper and a timeline may be enough for some to invest, but BVP will invest based on seeing the whites of the project team’s eyes twinned with a robust business plan, financial projections and real world application of the project that leads to monetary potential. The core team for BVP has over 40 years financial services experience in investment management, compliance, analysis and operations.