“To prevent financial risks, China will step up measures to remove any onshore or offshore platforms related to virtual currency trading or ICOs,” says China’s government via the state-owned People’s Bank of China. Quite right too, as this is an essential move to stop the cult-like danger these crazes present
It is about time, too.
Certainly there had to be a point at which a central government within one of the countries that lead the world in terms of global economic influence and which has a vast international contribution to worldwide manufacturing, service and commercial business would take a firm and irrevocable stance on ICO and cryptocurrency entities.
Unlike any new dimension in the global electronic trading sector, the current cryptocurrency ‘mania’ is mushrooming at a rate that can only be described as absolutely unsustainable and is in essence a sort of ‘black market’ due to its completely non-existent physical presence and its peer to peer nature in terms of distribution.
Similarly, unlike any new dimension in the global venture capital and startup financing sector (which I still maintain is absolutely nothing whatsoever to do with the FX and electronic trading industry at all – Ed) the Initial Coin Offering (ICO) mania is also mushrooming, to the point where its advocates in many cases appear to have lost all measure of their sensibilities.
These two overly pervasive elements of the modern media and economic structure can only be described as a cult, and as with many cults, the obsessive and irrational means by which they are flooding every area of cyberspace and direct marketing, often by entities and individuals with no provenance who do not mean well but have figured out how to ride a wave of semi-euphoric obsession and bilk the unsuspecting that way rather than pretend to provide them with a false financial product as was the case with binary options.
Cults are part of a subculture, and subcultures are notorious for railing against the mainstream, often with anarchistic or mercenary intentions, hence history has told us that they either dwindle and fizzle out, or become the subject of national bans or end up categorized as felons.
Bearing in mind the pseudo-investment undertones that surround cryptocurrency and ICO token sales, the onus would really have to fall on one of four nations, those being the United States, Japan, the United Kingdom or China, all for different reasons, but probable due to these nations being the most influential contributors to world business.
In the US, the Securities and Exchange Commission (SEC) considers cryptocurrency, and in particular Bitcoin, to be a commodity, and when looked at via its technical parameters, it is just that. It is ‘mined’, there is limited supply, and it thus can be listed as a futures product on exchanges, as it is on CME here in Chicago, the world’s most important and highly developed listed derivatives center.
The US government, however, does not approve at all and is very draconian indeed with regard to ICOs and cryptocurrency related schemes that are clearly off-exchange, operated by non-entities and mean harm to domestic clients. Cue the FBI investigations into the binary options fraudsters, and the clear notion that the FBI knows full well that the same people are now attempting to perpetrate ICO schemes and cryptocurrency fraud, only to a much larger audience and fueled with this insidious semi-euphoric ‘foaming at the mouth’ hype that America absolutely does not want, neither will tolerate.
This week, whilst in Chicago, FinanceFeeds will meet with a series of senior executives of the world’s most renowned listed derivatives exchanges and will report the view point forthwith.
In Britain, the Financial Conduct Authority (FCA) is ambivalent to cryptocurrency trading, hence losses among brokers trading in it have piled up, in one case resulting in a brokerage’s inability to pay its affiliates, upon which it solely relies as that is its only distribution channel. Know Your Client? That is a regulatory requirement, and affiliate-only referral models cannot comply with it yet it prevails, and by selling a non-existent currency bet to an unknown client base, a house of cards is inevitable.
In Japan, where, rather ironically, cryptocurrency trading and virtual exchange usage is prolific, the conservative nature of the populace is being trusted far too well by the Japanese FSA. Disasters like MtGox in which the owner of a virtual exchange claimed that the e-wallets had been hacked when actually the owners had been helping themselves to customer deposits with no recourse at all have not deterred the Japanese public nor the regulator, however it is a nation in which 35% of all global retail FX order flow is conducted, hence heed should be paid.
In China, however, things are somewhat different. It is a totally internalized communist country which relies on central government channels for everything from internet-based information and commerce, to how business with overseas entities across the world is conducted. It is not a free market, it is a controlled market, and the government handles all internal affairs and all contact with the outside world, despite China being the world’s largest supplier of every single manufactured product for export in every sector.
Hence, China has a responsibility to what it calls ‘social stability’ because the government’s standing as a world business and economic linchpin that basically operates the entire industrial and financial sector within China resulting in global real estate projects, heavy engineering, goods export to every corner of the world is vital.
Thus, China has become the first of these extremely important nations to take a clear step and banish cryptocurrency and ICO from its vast shores and even more vast economic landscape.
If China wants to remain the super-efficient global economic force that it is whilst doing so via a vast and equally super efficient central government that purchases massive global entities and then creates a Chinese powerhouse for license-based manufacturing and world supply, then it cannot allow cryptocurrency and ICO fraud to permeate the minds of its populace, and even less so, their wallets.
This morning, the Chinese government announced via state owned media channels in mainland China that recent attempts to stamp out digital currencies by shutting down domestic exchanges had failed to completely eradicate trading.
“ICOs and virtual currency trading did not completely withdraw from China following the official ban … after the closure of the domestic virtual currency exchanges, many people turned to overseas platforms to continue participating in virtual currency transactions. Overseas transactions and regulatory evasion have resumed and the risks are still there, fuelled by illegal issuance, and even fraud and pyramid selling,” the article said.
Note the quite correct connotation with fraud and pyramid selling. Indeed, ICO sale is nothing to do with electronic financial markets, and is quite simply a Ponzi scheme which is even worse than a traditional Ponzi-type arrangement in that the product being invested in and the share promised in it does not and never will exist.
“To prevent financial risks, China will step up measures to remove any onshore or offshore platforms related to virtual currency trading or ICOs,” said an article published on Sunday night by Financial News, a publication affiliated to the People’s Bank of China (PBOC) and an effective mouthpiece of the government.
China’s official Xinhua news agency quoted the People’s Bank of China this afternoon as saying it would tighten regulations on domestic investors’ participation in overseas transactions of ICOs and virtual currencies, as risks are still high in the sector.
The central government in Beijing, however, is taking a far more broad and comprehensive stance, which effectively bans all forms of activity related to digital currencies, aims to put the brakes on the ICO and virtual-currency trading mania that has been sweeping China.
The frenzy among retail investors led to huge price volatility and several reported incidents of fraud, causing a headache for regulators increasingly worried about social unrest.
In one incident on Saturday, reported by mainland Chinese media TMT Post, angry investors had forcibly taken Jiang Jie, founder of an ICO project called ARTS, to the Beijing municipal financial bureau, alleging fraud after the value of a virtual coin issued by ARTS tumbled to 0.13 yuan in two weeks from 0.66 yuan after its ICO and listing on an exchange in late January.
Following reports of the latest crackdown, advertisements for cryptocurrencies have stopped appearing on Baidu, China’s biggest search engine, and social media platform Weibo.
“It is common for people to use VPNs [virtual private networks] to trade cryptocurrencies, as many exchange platforms relocated to Japan or Singapore,” said Donald Zhao, an individual bitcoin trader who relocated to Tokyo from Beijing late last year, following the ban when approached by government-owned Chinese press today.
“I think the new move literally means it would be even harder to circumvent the ban in China … people promoting related business programmes may be arrested,” Mr Zhao said.
The tighter regulation from the PBOC will “definitely weigh on the cryptocurrency universe,” said Wayne Cao, who runs a company that recently offered 10 billion tokens in an ICO.
“Most of the Chinese ICO projects are invested in by Chinese investors. So if they are blocked, the whole cryptocurrency market will be dragged down” said Mr Cao.
China banned both ICOs and cryptocurrency exchanges in September, but trading by individuals has remained a murky area with many businessmen relocating to Hong Kong or Japan while still raising funds from mainland investors.
Two weeks ago, the PBOC ordered financial institutions to stop providing funding to any activity related to cryptocurrencies, further tightening the noose.
“It’s positive news for Japan and Singapore, because demand for participating in trading is not diminishing and traders have got to go somewhere,” said Ace Yang, executive director of Cathay Capital, a private equity firm based in Beijing.
One commentator said authorities would always be concerned about problems that could arise from a lack of supervision over blockchain technologies.
“Regulators will for sure step in, if any kinds of financial innovations currently implemented, including blockchain finance, digital finance, smart finance and big data finance, infringe upon the interests of consumers and affect the stability of the entire financial market,” said Li Lihui, a former president of the Bank of China who now works as team leader of the blockchain research department under the semi-official National Internet Finance Association of China.
This is a very good step forward by China, and with a precedent such as this, it can only be hoped that other global economic powers will follow suit.