Bitcoin Tumbles as PBOC Declares Initial Coin Offerings Illegal

[Eugene]

Source: Bloomberg

Bitcoin Tumbles as PBOC Declares Initial Coin Offerings Illegal

By Lulu Yilun Chen and Justina Lee
September 4, 2017, 3:17 AM EDT September 4, 2017, 10:35 AM EDT

? Digital currency falls as much as 11 percent, most since July
? China PBOC says all ICOs must be stopped and refunds provided

Bitcoin tumbled the most since July after China’s central bank said initial coin offerings are illegal and asked all related fundraising activity to be halted immediately, issuing the strongest regulatory challenge so far to the burgeoning market for digital token sales.

The People’s Bank of China said on its website Monday 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 those who have already raised money must provide refunds, though it didn’t specify how the money would be paid back to investors.

It also said digital token financing and trading platforms are prohibited from doing conversions of coins with fiat currencies. Digital tokens can’t be used as currency on the market and banks are forbidden from offering services to initial coin offerings.

“This is somewhat in step with, maybe not to the same extent, what we’re starting to see in other jurisdictions -- the short story is we all know regulations are coming,” said Jehan Chu, managing partner at Kenetic Capital Ltd. in Hong Kong, which invests in and advises on token sales. “China, due to its size and as one of the most speculative IPO markets, needed to take a firmer action.”

-snip-

Read more: https://www.bloomberg.com/news/articles/2017-09-04/china-central-bank-says-initial-coin-offerings-are-illegal

[PoindexterOglethorpe]

1. Interesting.

Everything I ever read about Bitcoin makes me highly suspicious that they will ever replace regular currency or electronic transfers.

[muriel_volestrangler]

2. BBC: Is this the next financial scandal waiting to happen? (ICOs)

Instead of issuing shares and floating all or part of the company on the stock market - known as an initial public offering or IPO - Civic decided to issue its own tokens, or digital currency, to help fund the identity verification platform it was developing.
...
Civic raised $33m (£26m) via this initial coin offering (ICO), as it's known.
...
The US Securities and Exchange Commission recently warned investors against fake ICOs and "pump and dump" scams, whereby fraudsters spread rumours and false information about potential ICOs in the hope of boosting a company's share price.
...
The worry is that ICOs are creating a classic investment bubble - similar to the Tulip mania in the 17th Century - and attracting fraudsters and hackers to this new, unregulated market.

http://www.bbc.co.uk/news/business-40704306

See also:

Law exaggerated the wealth of Louisiana with an effective marketing scheme, which led to wild speculation on the shares of the company in 1719. The scheme promised success for the Mississippi Company by combining investor fervor and the wealth of its Louisiana prospects into a sustainable, joint-stock, trading company. The popularity of company shares were such that they sparked a need for more paper bank notes, and when shares generated profits the investors were paid out in paper bank notes. In 1720, the bank and company were merged and Law was appointed by Philippe II, Duke of Orleans, then Regent for Louis XV, to be Comptroller General of Finances to attract capital. Law's pioneering note-issuing bank thrived until the French government was forced to admit that the number of paper notes being issued by the Banque Royale exceeded the value of the amount of metal coinage it held.

The "bubble" burst at the end of 1720, when opponents of the financier attempted to convert their notes into specie en masse, forcing the bank to stop payment on its paper notes. By the end of 1720 Philippe d'Orléans had dismissed Law from his positions. Law then fled France for Brussels, eventually moving on to Venice, where he lived off his gambling. He was buried in the church San Moisè in Venice.

https://en.wikipedia.org/wiki/Mississippi_Company

The South Sea Company (officially The Governor and Company of the merchants of Great Britain, trading to the South Seas and other parts of America, and for the encouragement of fishing) was a British joint-stock company founded in 1711, created as a public-private partnership to consolidate and reduce the cost of national debt. The company was also granted a monopoly to trade with South America, hence its name. At the time it was created, Britain was involved in the War of the Spanish Succession and Spain controlled South America. There was no realistic prospect that trade would take place and the company never realised any significant profit from its monopoly. Company stock rose greatly in value as it expanded its operations dealing in government debt, peaking in 1720 before collapsing to little above its original flotation price; this became known as the South Sea Bubble.

The Bubble Act 1720 (6 Geo I, c 18), which forbade the creation of joint-stock companies without royal charter, was promoted by the South Sea company itself before its collapse.

In Great Britain, a considerable number of people were ruined by the share collapse, and the national economy greatly reduced as a result. The founders of the scheme engaged in insider trading, using their advance knowledge of when national debt was to be consolidated to make large profits from purchasing debt in advance. Huge bribes were given to politicians to support the Acts of Parliament necessary for the scheme. Company money was used to deal in its own shares, and selected individuals purchasing shares were given loans backed by those same shares to spend on purchasing more shares. The expectation of vast wealth from trade with South America was used to encourage the public to purchase shares, despite the limited likelihood this would ever happen. The only significant trade that did take place was in slaves, but the company failed to manage this profitably.

https://en.wikipedia.org/wiki/South_Sea_Company