Why Banning ICOs Won’t Work
In September of 2017, the Central Bank of Russia released a statement detailing the risks involved in investments in cryptocurrencies and Initial Coin Offerings (ICOs). This was just one out of a few actions being taken by Government institutions around the world in response to the rising profile of cryptocurrencies and ICOs. Going back to July of this same year, the Securities and Exchange Commission (SEC) of the United States issued a ruling that classified some coin tokens as securities. This singular action further broadened the debate on the utility tokens and tokenized securities dichotomy.
The most noteworthy opposition to ICOs has to be China’s decision to place a blanket ban on all Cryptocurrency ICOs. This action initially sent alarm bells ringing all over the market especially considering the fact that it came at a time when cryptocurrencies were experiencing a drop in value. September began with a 40 percent drop in total cryptocurrency market capitalization value from $169 billion to just under $109 billion. So when news of the Chinese ban came out, it may have appeared that cryptocurrencies were about to face a huge crisis.
Examining the China ICO Ban
The main narrative that broke out during the social media frenzy that followed China’s ban on ICOs and cryptocoin exchanges was the impact such an action would have on the market. Price of Bitcoin and Ethereum fell considerably in the immediate aftermath of the announcement but anyone familiar with finance will know this to be a normal occurrence. In the midst of all the talk, several key aspects of the ban seemed to have been lost in the sensationalized reporting. Without straying too far into the realms of politics, the major driving force behind the China ICO ban can be summarized as follows:
In a bid to successfully balance trying to remain relevant in the global financial market and curtailing the activities of fraudulent ICO operators, thereby protecting investors, the Chinese government placed a blanket ban on ICOs.
With the fact that such a decision was taken only a few short weeks before the NPC held on October 16, many experts have come to the conclusion that it is just a temporary measure.
Reasons Why Banning ICOs Won’t Work
- No Crackdown on Bitcoin Mining
One of the biggest criticisms of Bitcoin has been the emergence of a mining power bloc in China. During this season of China’s regulatory actions against several aspects of the crypto market, there wasn’t any action taken against bitcoin miners. Bitcoin mining generates millions in foreign exchange for China and the possibility of the Government banning it is remote at best. This shows that it isn’t so much apathy against Cryptocurrencies, as it is against the unregulated nature of ICOs. Even in the case of cryptocoin exchanges that have closed down their services in China, the ones that run pool mining services didn’t close down those pools.
- Massive ICO Growth in Japan and Singapore.
Japan was the first country to legalize cryptocurrencies for payment processing. This meant that Japan automatically became a hotbed for the crypto market. ICOs are immensely popular in Singapore and with the blanket ban imposed by China, this popularity will grow even more. In a world where countries do not want to fall behind, it will be hard to see a situation where another country decides to follow China’s footsteps knowing fully well that such a move vastly weakens their presence in the market.
- Introduction of a Regulatory Framework.
A leading cause of the 2008 global financial crisis was the deregulation of the financial service industry that had been ongoing for more than two decades prior. Even in the mainstream financial sector, there is still room for a lot of bad practices that lead to large losses by investors. Many experts quite rightly posit that introducing a more robust regulatory framework will vastly rid the market of scam ICOs. This will go a long way to legitimizing ICOs.
While China may have banned ICOs, it has in no way affected the growth of the cryptocurrency market. Most Governments around the world are examining the process of introducing appropriate regulations for ICOs due to the concern that ICOs have the potential for money laundering and terrorist financing (ML/TF). No one can dismiss the presence of a few unsavory characters taking advantage of the anonymous nature of the transactions. However, no one can also dismiss the potential for creating a new wave of legitimate business opportunities through access to easy funding by means of ICOs.
The summary of the gist from countries like Japan, Singapore, Russia, and the United States is that investors in ICOs need to be vigilant. The same can be said for just about any investment scheme. Vigilance is predicated upon adequate information and at TruDex, we provide you with tons of information about happenings in the world of ICOs and cryptocurrencies. Join us today and be part of our online community where you can have access to lots of resources to help you better understand the market.