China bans ICO

After the ICO Ban in 2017, will 2018 witness the ICO hustle in China?

The year 2017 has seen many new developments and disappointments in the world of cryptocurrency. A large number of cryptocurrencies were created in 2017. Crypto coins may not have yet entered the mainstream of transactions but many renowned banks and organizations like Deutsche Bank and IBM have used the blockchain technology to conduct transactions. 2017 also experienced the boom of ICOs (Initial Coin Offerings). 2018 hopes to see more and more institutions joining the blockchain and crypto craze. But everything may not be up to the curve in 2018. In the last quarter of 2017, we have seen many countries like South Korea had taken some serious steps to regulate the ICOs and control cryptocurrency trading to a certain extent. Anonymous Bitcoin trading accounts are to be deleted in South Korea and neither will the exchanges permit children to trade Bitcoins.

The Status of Cryptocurrency Exchanges after PBOC Meeting

In late 2017, The People’s Bank of China (PBOC) and nine crypto exchanges had held a meeting to regulate such a high volume of trading in Bitcoins and other cryptocurrencies. Security is also an issue that was brought up at the meeting. The cryptocurrency exchanges of China like OKCoin, Huobi and CHBTC was ‘forced’ to suspend Bitcoin withdrawals for nearly one month following the meeting regarding cryptocurrency trading and initial coin offerings. After near about one month, the top few cryptocurrency exchanges of China like BTCC had to delay the withdrawal process by at least 72 hours. However, another cryptocurrency exchange BTCTrade and Yunbi had strengthened the process to ensure comparatively easy withdrawal. At that moment many crypto connoisseurs had seen this as a way to regulate Bitcoin price by China.

China Bans Crypto Exchanges and ICOs in 2017

China had announced the closure of many cryptocurrency trading exchanges. Similar warnings have been issued by many American and European supervisors. All these regulatory steps have been taken to curb the excessively high volume of Bitcoin and some other cryptocurrencies. In the month of September in 2017, Chinese regulators had collectively decided to put on a ‘comprehensive ban’ on any exchange supporting Bitcoin and other cryptocurrencies. The Wall Street Journal reports that the government officials of China had issued warnings to the country’s currency exchanges.

China had also banned ICOs by stating that these unregulated public funding systems are disrupting the country’s financial order. It was also a step to stop the arrival of so many crypto coins. The People’s Bank of China (PBOC) had announced that ICOs would be penalized in future if they continued to fund cryptocurrency projects. Neither could the digital tokens be used to conduct transactions through the banks.

The Consequences of the Ban

After announcing the ban, PBOC had requested the ICO campaigns to refund the amount invested to protect the investors. Many blockchain projects like that of Health Mutual Society had to refund what they had raised in Bitcoin and Ethereum. Their development team stated:

“To cooperate with relevant ministries in China in the investigations and the reorganization, HMS hereby decides to cancel the ICO on ICOINFO and put further operation on hold indefinitely. The fund collected will be returned to supporters’ accounts. The refund schedule will subject to ICOINFO’s announcement.”

Immediately after the announcement of the ban, the effect was seen in the remarkable fall of the price of Bitcoin, Ethereum and rest of the cryptocurrency market. The ICO campaigns will have to leave the country and look for completion of the proposal elsewhere, a more cryptocurrency and initial coin offerings favorable environment. However, the ban did not completely stop the Chinese investors from buying and trading the crypto coins.

Another downside (this is for the Chinese government) is that the ban had increased cryptocurrency trading over-the-counter (OTC) markets and P2P trading platforms like LocalBitcoins. This means that the Chinese authorities will not have any control if the traders decide to exchange cryptocurrencies and the Chinese fiat currency.

China was saved from an extremely volatile Bitcoin market in the second half of 2017 due to the announcement of the ban.

The Scenario in 2018

The forecast is that the more popular cryptocurrency exchanges of China are looking forward to shifting their base to Japan. Huobi, often considered to be the largest Bitcoin trading platform of China, is currently in the process of joining hands with the Japanese financial institution SBI Group, previously known as Softbank Investment Group. The news is that the collaboration will lead to the birth of two new cryptocurrency exchanges (SBI Virtual Currencies and Huobi Japan) in the first quarter of 2018.

The Japanese financial institution, SBI Group is considering using the technology of the platform Huobi and the know-how. Along with the partnership, SBI Group plans to take over “30 percent of the equity in Huobi Group’s Japanese entity”. The Japanese financial institution will also receive 10% of Huobi Group’s Korean entity. Huobi will acquire 30% of the equity in the SBI Virtual Currencies business. The agreement goes as

“SBI Holdings has reached a basic agreement with Huobi Group (1.65 million accounts, maximum daily transaction volume of over CNY 30 billion (approximately JPY 510 billion), which has a track record of stably operating a major cryptocurrency exchange in China, to explore the following alliances.”

In the beginning of January 2018 itself, the price of almost all the major cryptocurrencies had fallen significantly. It is said that the Internet-finance regulatory group of China are putting pressure on the local governments to restrain the cryptocurrency miners. The local authorities have been asked to increase electricity charges, land taxes and environmental regulations. China was basically the house of many renowned cryptocurrency mining farms due to low labor costs, easy availability of chips and inexpensive power. After the ban, these mining farms have been forced to look elsewhere. Most of these mining farms are now shifting their base to Singapore, Canada, and the U.S. Bitmain has set up its regional headquarters in Singapore while BTC.Top is in the process of opening up a facility in Canada.

Crypto connoisseurs say that even if the global price of Bitcoin falls at half the price level, people trading Bitcoins over-the-counter from China will continue to profit as long as the price of Bitcoin is more than $6,925. So, everything is not so gloomy when it comes to trading Bitcoin and other major cryptocurrencies in China. The shifting will not be much of a problem as the computers used in mining cryptocurrencies in China will not last long and other equipment is relatively cheap. However, the establishment of these mining farms in other parts of the world will have to face comparatively higher costs. So, it seems that the cryptocurrency hustle will continue in China in 2018.

The crypto connoisseurs now speculate that crypto exchanges and ICOs will again be in the game in China but with more regulations. Talks are also that China will launch its own crypto coin, Crypto Yuan. Rumours are that the date is not so far away. Its features are more likely to differ from a free-floating cryptocurrency. It will be interesting to see the amalgamation of the existing features of a cryptocurrency and some new features. The crypto connoisseurs have crossed their fingers and are hoping that this move will prove to be a boon for the crypto markets throughout the world. Many say that the volume of Bitcoin mined in China will decrease considerably. Then again, it may be balanced by another region.

DISCLAIMER: Opinions expressed by Coinschedule Blog contributors are their own.

Hira Saeed on Twitter
Hira Saeed
Founder of Tech Geeks Pakistan and Digital Doers. Hira is also a public speaker and columnist who shares her views on Startups, AI, chatbots and Blockchain technology on VentureBeat, The Next Web and Tech In Asia.