China set to tighten rules on virtual currencies

BEIJING • China is poised to further tighten rules on virtual currencies after regulators banned virtual coin fundraising schemes, Chinese financial news outlet Yicai reported.

China on Monday banned and deemed illegal the practice of raising funds through launches of token- based digital currencies, targeting so-called initial coin offerings (ICOs) in a market that has exploded since the year started.

Yicai's report late on Monday cited a source close to decision- makers as saying the announcement of the ban was just the start of further follow-up regulations on virtual currencies.

In total, US$2.32 billion (S$3.14 billion) has been raised through ICOs globally, with US$2.16 billion of that raised since the start of the year, according to analysis website Cryptocompare.

The rapid ascent of ICOs prompted the US Securities and Exchange Commission to warn in July that some ICOs should be regulated like other securities. Singapore and Canada followed with similar warnings.

Bitcoin rival Ethereum, which token-issuers usually ask to be paid in and which has seen dramatic growth this year, plunged on the news. It was down almost 20 per cent on Monday and fell 5 per cent yesterday, according to trade publication Coindesk.

Bitcoin was down a further 4.6 per cent yesterday, after falling 8 per cent on Monday.

The rapid ascent of ICOs prompted the US Securities and Exchange Commission to warn in July that some ICOs should be regulated like other securities. Singapore and Canada followed with similar warnings.

Major virtual currency trading platforms BTCC and Huobi had no comment on the ICO ban.

Chinese ICO platform Icoinfo said it has stopped all ICO services and is working with groups that issued virtual tokens on its platform to return funds to investors. It said several projects had already done so.

Another Chinese exchange, Binance, said on its website that it is "working around the clock on a solution that will fully satisfy the new regulations in China".

However, it is also looking at "preserving and enhancing features that are valuable to our Western community, which accounts for more than 81 per cent of our user base", it said.

Some members of a chat group on WeChat set up for an ICO last week complained about the strict regulation, and wondered when they would get their funds back.

Some users commenting on the website QQ.com welcomed the regulation, saying it would help the bitcoin ecosystem in the long run.

"Regulation of ICOs is the best thing that could have happened to bitcoin. From now on, there won't be any reckless issuance of virtual currencies," wrote one user, who saw a bright future for the currency.

"For the past eight years, each time bitcoin has declined in value has been a great buying opportunity."

REUTERS

A version of this article appeared in the print edition of The Straits Times on September 06, 2017, with the headline 'China set to tighten rules on virtual currencies'. Print Edition | Subscribe