Initial coin offerings (ICOs) have exploded over the past six months and, as far as mainstream integration is concerned, have provided a real world verification of blockchain potential. Driven by the potential for fraud, however, it was only a matter of time before regulators started to take a stand and apply some sort of framework to the space. As it turns out, the first nation to do so is China but policymakers in the nation haven’t applied any sort of framework as we might’ve expected – instead they’ve outright banned the sale of digital tokens.
According to the website of the People’s Bank of China, any future offerings will be “strictly” punished and offerings that have raised money to date must refund those who bought tokens.Exactly how companies are going to carry out this refund process remains to be seen, but chances are we will see some further directive over the coming weeks.
This is the first real hit that the bitcoin space has taken from a fundamental perspective during the last 12 months and the development is being reflected in price. From close to $5,000 apiece preannouncement, bitcoin currently trades for just shy of $4300 – a nearly 15% decline on the news. Ether is also down.
Longer term, the development may not be as negative for the cryptocurrency space as it initially seems. Just as was the case with bitcoin in the early days, a lack of regulation can lead to fraud proliferation and so some degree of oversight is probably necessary. An outright ban isn’t exactly what the space was hoping for, of course, but it is unlikely that policymakers in other regions will follow the same route as those in China as far as implementing an outright ban is concerned; instead likely opting for a base of rules put in place similar to those which govern more traditional IPOs.