Recently it was announced that China, the world’s second largest economy, has banned all Initial Coin Offerings (ICOs), an increasingly relevant crowdfunding vehicle for young companies. The People’s Bank of China stated that this new crowdfunding mechanism is “disrupting” the country’s financial order and “raises suspicions” of fraud and criminal activity.
Coin offerings have raised $1.6 billion USD in 2017 alone with 65 launches in China totaling some 2.6 billion yuan or $398 million USD. The directive made no mention of cryptocurrencies such as ether or bitcoin, although the price of both has been heavily affected by today’s news.
Those favouring coin offerings have praised them as innovative financial instruments allowing companies to raise capital more effectively and quickly. However opponents say that projects in the space vary in quality and the lack of regulation leaves ICO participants vulnerable.
Yesterday’s directive sparks many questions as to where the future of ICOs is headed and how regulators in jurisdictions worldwide will deal with ICOs in future.
Initial coin offerings mania - analysts React
Logos Capital opines:
his week, throughout my conversations and observations about the market I couldn’t help but notice a common theme: boredom. The last 2 weeks have been relatively quiet in the markets as investors return from vacation while others gear up for the long weekend.
Nevertheless, the punditry and financial media have soldiered on doing their best to whip up stories suggesting that danger is lurking around every corner: The Fed, North Korea, Trump, China’s CDS market etc.
What these times of “boredom” acutely remind me of is a principle eloquently presented by Christoper Mayer: “Boredom can explain a lot. It can explain all kinds financial behavior. And there is definitely a “boredom arbitrage” to take advantage of in the markets.”
People get bored. Most of life for most people is “boring”. Most jobs require just enough concentration to prevent one from drifting off into a dream but not enough to really occupy the mind. As a result, we have boredom on a massive scale. As such, people will do all kinds of strange things to alleviate that boredom.
They will act like fools. Dress like idiots and make all kinds of decisions to sabotage their lives. Anything to kill the boredom.
The financial markets are still primarily composed of the results of people’s decision making and thus are influenced by boredom. People get bored and just want to make something happen.
In the financial markets, people wind up sabotaging their own portfolios out of sheer boredom.
Why else throw money at fly by night unregulated Initial Coin Offerings (ICOs)? Or put money in “pre-revenue” tech startups with unproven founders? Or chase hyped up tech companies that trade at absurd levels with questionable prospects? Or go to cash or gold because Donald Trump is in the White House or “the market” looks overvalued?
They are bored!
Red Pulse research notes:
PBoC banned initial coin offerings (ICOs), the central bank said in a statement along with six other ministries. All token sales should be suspended immediately and those who have already ICOed should arrange for refunds. Cryptocurrency exchange platforms are not allowed to facilitate currency conversion among fiat currencies, tokens, and cryptocurrencies, as well as to provide pricing services for any cryptocurrencies or tokens, or act as information intermediaries.
StockTwits notes:
China just did something drastic and it might change the game for cryptocurrencies. They just put a ban on raising money through ICOs. This news is tanking the crypto market as we type from Bitcoin to Ethereum and Litecoin. Some people think it's still the biggest bubble EVER.
Luis Cuende, Co-Founder and Project Lead, Aragon
Some governments and incumbents will try to shut down this movement, and come to unreasonable extremes in order to do so. However, thanks to the Internet and cryptography, there’s no going back. Eventually, some other governments will embrace token sales and crypto in general, creating jurisdictional competition, and forcing the incumbents to be reasonable. We’re also in a very extreme moment for ICOs, where a lot of scam projects are happening, and that will also ease as the market matures. I’m very bullish about everything that’s happening, and not surprised at all.
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David Moskowitz, Co-Founder and CEO, Indorse
Given the speculative environment surrounding ICOs in China it is understandable that the authorities are looking at ways to safeguard consumers. As such, we welcome efforts by the Chinese authorities to protect consumers from fraudulent ICO activities. We hope the authorities will recognize the potential of the sector for economic growth and technological development, and enact rules which will allow for the safe and secure future of the industry.
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Perry Woodin, CEO Node40
After the SEC published its July 25th investor bulletin on ICOs, it comes as no surprise that financial regulators in other countries are defining strict prohibitions against ICOs. Immediately following the SEC publication, NODE40 saw an uptick in requests for assistance in accounting of distributed tokens. Token sellers suddenly became interested in compliance. Across the weekend, the cryptocurrency market lost almost 20 percent of its entire market worth, and the most heavily affected tokens were those borne from ICOs. It will be interesting to see what effect this prohibition in China has on current and upcoming ICOs.
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Trevor Koverko, CEO Polymath
The Chinese ruling on ICOs is a gift for the rest of us. Blockchain projects are distributed by definition and they will gravitate towards jurisdictions that welcome them and support them. Considering blockchain people are some of the smartest and most innovative folks in the world, Silicon Valley should be sending a thank you card to the People’s Bank of China. Companies that conduct Initial Coin Offerings are speaking with regulators in various jurisdictions everyday, and welcome an open dialogue. Guidelines are being worked on, and they are needed, but it's important to note that ICOs are here to stay. The question is, where will they go?
Steve Nadel, leading hedge fund attorney and partner at Seward & Kissel LLP in New York, has the following to say about initial Coin Offerings ban.
“Cryptocurrencies have garnered a fair amount of interest in the investment management space, primarily because of the returns they have recently shown. We have seen managers invest in the actual currencies and/or in the ICO’s, and soon there will be derivatives as well.”
“Obviously, this is an area where there are still lots of operational and other issues that need to be worked out including: how will the assets be valued, how will the investments be hedged, how will the assets be custodies, and how will investors be given liquidity. In addition, as regulators focus more on this area, we anticipate additional statements and possible legislation from the SEC, CFTC and others.”
And in the latest initial coin offerings insanity...
Synthorn is selling “Synthetic Rhino Horn Aphrodisiac, Tokenized on the Ethereum blockchain.”
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Rhino horn is much sought after for use as an aphrodisiac. However, poaching has had a devastating effect on rhino populations worldwide. To combat this, Synthorn proposes a synthetic rhino horn aphrodisiac, tokenized on the Ethereum Blockchain via an ERC20 token. This would allow pre-orders, trade and speculation. A separate sale of HORN tokens is being conducted to validate the proposed ICO.
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Caveat Emptor!
