The cryptocurrency market is having another rocky morning as South Korean authorities announced a ban on initial coin offerings (ICOs). While countries such as the US and the UK have warned investors to exercise caution before becoming involved with such projects, China has completely banned the fundraising method, and Taiwan could be next.
Photo: AP
[referenced url=”https://gizmodo.com.au/2017/09/what-are-icos-and-why-are-they-getting-banned-in-china/” thumb=”https://i.kinja-img.com/gawker-media/image/upload/t_ku-large/b2bjrxucwbqkkrrrstez.jpg” title=”What Are ICOs, And Why Are They Getting Banned In China? ” excerpt=”China recently banned initial coin offerings (ICO) and briefly paused the seemingly unstoppable price increase of bitcoin. But the cryptocurrency has already bounced back. With the likes of Paris Hilton, Kim Dotcom, and John McAfee all jumping into the ICO world in one way or another, it seems worth asking what the hell this whole thing is about.”]
Reuters reports:
The Financial Services Commission said all kinds of initial coin offerings (ICO) will be banned as trading of virtual currencies needs to be tightly controlled and monitored …
“Stern penalties” will be issued on financial institutions and any parties involved in issuing of ICOs, the statement added, without elaborating further on the details of those penalties.
ICOs have become a hot new way for startups to raise money by offering new digital tokens in the cryptocurrency space, and according to Forbes, the method has pulled in over $US2 billion ($2.6 billion) in the first nine months of 2017. They have also been shown to be vulnerable to hackers looting funds and scammers taking advantage of overzealous investors.
For governments that take an active role in micro-managing their economies, such as China, the ICO has become too risky to permit. But at the same time, these countries haven’t attempted to completely ban the use of cryptocurrencies. South Korea’s announcement on Friday made it clear that the country’s current tolerance of digital currencies should not be read as implicit acceptance. But it’s unclear how a country would regulate decentralised currencies like bitcoin even if they wanted to.
So far, cryptocurrency prices have dropped following market-shaking events like the hard fork into two currencies that split bitcoin this winter and China’s increased regulations. But values have always levelled back out. One reason could be that people really believe there’s a future in this market, but more likely, the stabilisations are just the result of speculators jumping in and out. “I sold at $5000 or $4980,” Mike Novogratz, a former Wall Street tycoon that’s focused on bitcoin at the moment, tells Bloomberg. “Then three weeks later I’m trying to buy it in the low $3000s. If you’re good at that and you’re a trading junkie, it’s a lot of fun.”
At the same time, established financial firms such as Fidelity are getting into the market, and companies such as Overstock.com are offering their own digital tokens. Still, for every offering that’s coming from a responsibly-managed company, there’s a flash in the pan, get-rich-quick scheme that doesn’t have much going for it beyond a celebrity endorsement. Just know ahead of time, if you invest in an ICO just because DJ Khaled promoted it on Instagram, you played yourself.
[Reuters]