Chinese central bank says initial coin offerings are illegal

[HONG KONG] China's central bank said that initial coin offerings are illegal and have asked all related fundraising activity to be halted immediately, according to a notice from the regulator.

The People's Bank of China said it has completed investigations into organizations and individuals who have conducted ICOs, and have ruled that the financing activities disturb financial order and shall be banned.

ICOs - digital token sales that have raised about US$1.6 billion - have been deemed a threat to China's financial market stability as authorities struggle to tame financing channels that sprawl beyond traditional banking system.

Widely seen as a way to sidestep venture capital funds and investment banks, ICOs have also increasingly captured the attention of central banks that see the fledgling trend a threat to their reign.

A cross between crowdfunding and an initial public offering, they involve the sale of virtual coins mostly based on the ethereum blockchain, similar to the technology that underpins bitcoin.

But unlike a traditional IPO in which buyers get shares, getting behind a startup's ICO nets you virtual tokens - like mini-cryptocurrencies - unique to the issuing company or its network.

That means they grow in value only if the startup's business or network proves viable, attracting more people and boosting liquidity.

BLOOMBERG