Crypto Crash After China Declares Initial Coin Offerings (ICOs) Illegal

cryptoassets (28)in #cryptocurrency • 7 years ago (edited)

A significant drop in the crypto markets is recorded after China declares Initial Coin Offerings (ICOs) illegal.

The People's Republic of China (PRC) has declared unlawful any Preliminary Coin Providing (ICO), ordering the apply to stop instantly beneath menace of imprisonment, ordering any monetary or non-financial establishment to not present any direct or oblique service associated to ICOs, and ordering those who have already ICO-ed to instantly refund the buyers and shut store.

“All types of currency issuance financing activities shall cease immediately,” the “People’s” Bank of China (PBoC) said in a notice according to a rough translation, before adding:

“The organizations and individuals who have completed the financing of the tokens should make arrangements for repatriation… The relevant departments will seriously investigate and deal with non-stop tokens issued financing activities and the completion of the tokens issued financing projects in the illegal acts.”

This morning, ethereum, bitcoin and crypto market are crashing, after China confirmed its recent threat of an ICO crackdown (reported by Zero Hedge last Monday) when the central bank said on Monday that initial coin offerings are illegal and disrupt financial markets, according to statement on China’s central bank website. The PBOC also asked all related fundraising activity to be halted immediately, issuing the strongest regulatory challenge so far to the controversial if surging market for digital token sales.

The crackdown was announced in a statement on the PBOC's website in which the central bank said that it had completed investigations into ICOs, and will strictly punish offerings in the future while penalizing legal violations in ones already completed. The regulator said that organizations or individuals that completed initial coin offerings should return the money raised, in move "to protect investors’ rights and properly handle risks," though it didn’t specify how the money would be paid back to investors.

The ban is not permanent

According to local financial financial magazine Caixin, Chinese regulators — People’s Bank of China and China Securities Regulatory Commission — are currently deciding on how to handle ICOs. Caixin reports that a permanent suspension is possible.

Until any regulation is actually put in place, however, we have to assume that the ban on ICOs is temporary and will be lifted within reasonable time.

Regulation is good in the long run

It is important to understand what is China trying to achieve here. Caixin quotes a source that said “90 percent of ICO projects are suspected of illegal fund-raising and intentional fraud”. Regulators are also concerned about ICOs being used to fund terrorism.

All in all, reasonable regulation would be beneficial for the entire blockchain industry. It could solve issues that are otherwise unsolvable, and will ensure a level of protection for investors and ICO project backers. This way, ICO scams will be easier to filter out, leaving room for legit projects to gather funding and build actual, useful products or services.

Funding rounds for blockchain projects, or initial cryptoactive offers (ICOs), appear to be encountering regulatory constraints in different parts of the world, as in the United States under SEC provisions.

How to protect yourself from a crypto crash?

Here are a few options for protecting your capital without converting to FIAT:

(Source: The CryptoBear is Coming for Your Lunch! How to Protect Profits When Markets Go Red! by @ldauch)

1.) Convert to USDT

'USDT is a cryptocurrency asset issued on the Bitcoin blockchain via the Omni Layer Protocol. Each USDT unit is backed by a U.S Dollar held in the reserves of the Tether Limited and can be redeemed through the Tether Platform'

You can convert to USDT on most popular exchanges such as Poloniex and Bittrex.

Here is a good article on USDT (Tether) - https://www.cryptocompare.com/coins/guides/what-is-usdt-and-how-to-use-it/

However, this method comes with considerable risk. After additional research, this is a statement that you should really consider before buying USDT coming from Tether's own TOS:

PURCHASE AND REDEMPTION OF TETHERS: The Site is an environment for the purchase and redemption of Tethers. Once you have Tethers, you can trade them, keep them, or use them to pay persons that will accept your Tethers. However, Tethers are not money and are not monetary instruments.

They are also not stored value or currency. There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money. There is no guarantee against losses when you buy, trade, sell, or redeem Tethers.

This can be read on the Tether TOS page - https://tether.to/legal/

2.) Convert to BitUSD

'The bitUSD is a premium asset that comes with a strong "peg" to the U.S. Dollar. The underlying mechanics ensure that it does not sell below $1 worth of BitShares equity.'

@Zeroc wrote a wonderful article about BitUSD and how to use the system that can be read here:
https://steemit.com/bitshares/@xeroc/what-makes-the-bitusd-than-nubits

Both USDT and BitUSD seem to be very good choices as a store of value during turbulent cryptocurrency markets.

Or just do what people did before all these new high-tech next-gen options. Go back to the basics...

3.) Convert to BTC

Although you won't be completely protected, altcoins are traditional much riskier than the godfather of all coins Bitcoin.

You won't have the same security as FIAT (although I feel foolish saying this because FIAT has certainly had its day and the printing press is certainly running 24/7).

But, don't forget that Bitcoin is the founder of all crypto, it's value is undeniable and it has the largest network effect of all cryptos.

Cryptos, ICOs and Tokens

For the uninitiated, here is the definitive presentation on cryptos, ICOs and tokens courtesy of Autonomous » View and download # Token Mania — The new funding mechanism using distributed ledger technology that displaces both public markets (IPOs) and private investment (Venture Capital) with a billion of USD equivalent cryptocurrency