People’s Bank of China Alerts Cryptocurrency Investors on Illegal ICO
As the media reports on Chinese citizens avoiding measures that ban cryptocurrency trading and ICO using various means, on September 18, 2018, the Central Bank of China (PBoC) issued a new warning.
ICO is an Illegal Form of Fraud and may be a Pyramid Scheme
In the warning letter, the Chinese central bank notes that funding by ICO is a violation of the law: “ICO is suspected of issuing illegal tokens, illegal securities, financial fraud, MLM, and other criminal activities.”
The central bank also showed off the past results of the ban on cryptocurrency trading, and revealed that the transaction by the Chinese currency “yuan” was less than 1% of the world’s total trading volume. In addition to the decrease in trading volume, the central bank stated that the measures to ban ICO’s were successful.
“The global share of virtual currency trading in China fell to less than 5% from the original 90%, allowing us to evade the domestic cryptocurrency bubble triggered by the global cryptocurrency price increase in the second half of the previous year (September 2017). “
New Series of Measures Announced by Financial Special Risk Remediation Guidance Group
The central bank organized the “National Internet Financial Risk Special Remediation Leading Group” in response to the closing of the exchanges and the prohibition of ICO, and announced a series of countermeasures. The first is to “strengthen monitoring of trading platforms that provide services from overseas to domestic users.” The second is to “clear out cryptocurrency-related settlement services.” The last is to “strengthen research and evaluation of ICO and similar means.”
Particularly with regard to the third, the market will issue clear warnings in accordance with regulations, so the goal is to intervene early and to prevent the problem from occurring. For that purpose, they will “strengthen censorship efforts” by eliminating domestic ICOs and website-related cryptocurrency transactions.
Finally, the central bank strengthened their warnings to ICOs, their issuers, and individuals and organizations that provide transactions to Chinese citizens by bringing in overseas services to domestic consumers and investors. It also called on citizens to report suspicious activity to authorities.
Investors Avoid Regulation Using P2P Transactions and VPN
Since the ban in 2017, the Chinese government closed or stopped 88 ICO trading platforms and 85 ICO projects. Although the measures of 2017 years did in fact reduce the ICO trading volume, investors have taken a number of measures to avoid this ban. Most of this has been done using virtual private networks (VPN) and overseas exchanges, which often changes the domain name.
In addition, some investors are looking at peer-to-peer (P2P) transactions to purchase ICO tokens. They pay foreigners with legal tender and have them transfer the tokens. In response, Chinese regulators have cracked down on illegal activities through various means, including wiping out payment channels and strengthening functions to monitor financial transactions.
The warning letter further states that enhanced monitoring and new measures regulating ICOs and has already been successful, with 124 IP addresses blocked and 3,000 accounts closed. It is no doubt that this is a countermeasure in response to the spread of overseas exchanges that provide services to domestic users.
Immediate Effects of Second Warning Unknown
The 2017 ban on ICO had a big impact on the cryptocurrency market, causing its price to fall by more than 10%. Many Chinese enterprises, including WeChat and Tencent, told investors about the closure of cryptocurrency and ICO-related business on their platforms.
The Chinese government has not shown any sign of loosening its regulation on cryptocurrency trading and ICOs. Whether the second warning is able to stop the spread of illegal trading is unclear at this time.
