- One of the hottest new waves in tech – startups raising money via a virtual currency – has today been banned outright in China.
- Initial coin offerings – ICOs for short – can no longer be held in the country, and any current fundraising must be halted, according to a People’s Bank of China directive (link in Chinese), reports Bloomberg. In addition, all completed ICOs must liquidate and refund investors.
- ICOs have been deemed a threat to China’s financial market stability. Authorities seem to fear a massive fraud or bubble that might cause social disorder.
Why it matters:
- Like a mix between crowdfunding and an IPO, ICOs have boomed in popularity in the past few months. They allow entrepreneurs to raise money from ordinary investors, bypassing venture capital firms and investment banks.
- So far this year, young tech companies – some with no more than a rough idea for a product – have raised US$1.5 billion with ICOs, says CoinDesk data. That surpasses seed funding from VC firms.
- ICOs pass massive risk onto ordinary investors, and lack a regulatory framework like the IPO system.
China also moved swiftly in 2013 when it banned bitcoin – or any virtual currency – being used as an actual currency.
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