An analysis on the effect of regulatory interference by China on ICOs

With over US$1.3 billion having been raised through initial coin offerings (ICOs) in 2017, the market has caught the eyes of regulators, monetary authorities and central banks within three of the major global hubs of cryptocurrency investment.

Over the past two months, several authorities have expressed the need for financial regulation, and in recent times, prohibition.

An overview of recent events is as follows:

25 July 2017 - SEC issues investigative report on DAO token (USA)

The SEC issued an investigative report cautioning market participants that offer the sale of digital assets and the need to comply with federal securities laws.

01 August 2017 - MAS clarifies regulatory position on digital tokens (Singapore)

The Monetary Authority of Singapore (MAS) issued a statement advising that some tokens will be constituted as products under the Securities and Futures Cap (Cap.280).

04 September 2017 - PBoC prohibits the sale and purchase of ICOs (China)

The Peoples Bank of China (PBoC) issued a statement prohibiting the purchase and sale of initial coin offerings by Chinese investors, banks, and issuers.

The preceding events have led to short term volatility and uncertainty within global crypto markets as investors liquidate portfolios in the wake of regulatory intervention.

The statement issued by the PBoC has had the most profound effect on markets due to China’s influence and recent participation of new token sales.

The affected

As a matter of illustration, we refer to the case study of Neo (NEO), a Chinese based blockchain firm which was to be dubbed as China’s new Ethereum. NEO launched its ICO in July and at its peak, gained 300% from its opening on the exchange on August 6th, 2017 (although ICO holders received a deep discount).