People’s Bank of China Issues Warning on Cryptocurrencies

- September 18th, 2018

In a statement, the bank cautions investors interested in cryptocurrencies about the risks of digital currency trading and initial coin offerings.

China’s stance against cryptocurrencies remains as firm as ever. 

On Tuesday (September 18), the People’s Bank of China released a statement cautioning crypto-enthusiasts of the dangers associated with digital currency trading and initial coin offerings (ICOs).

In the statement, China’s central bank commented that cryptocurrency prices have “skyrocketed,” leading to a rapid increase of risks that have disrupted a combination of economic, financial and social disorder.

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The bank alleges that the “main body” of ICO financing is mixed and is suspicious of a variety of illegalities, including issuing tokens and securities, criminal activities, financial fraud and pyramid scheme among other things.

Tuesday’s announcement comes a year after the People’s Bank of China issued its ban on ICO’s altogether.

“[A]ll types of token financing activities should be stopped immediately,” the September 2017 notice read. “[A]ny so-called token financing trading platform shall not engage in the exchange of legal currency and tokens, or “virtual currency,” and may not buy or sell or trade tokens or “virtual currency” as a central counterparty.”

In the bank’s most recent warning, it says the “global share” of domestic virtual currency transactions has decreased from the previous 90 percent to the now less than five percent.

The People’s Bank of China states this has led to “effectively avoiding the virtual currency bubble caused by the skyrocketing global virtual currency prices since the second half of last year, blocking the financial market in China.”

That being said, the bank noted questionable financial activities in the “Internet era” are both largely unseen and changeable. This includes Chinese-based investors bypassing the country’s ICO ban thanks to trading platforms that have left China after originally being set up in the country.

In response to this, the People’s Bank of China said the National Internet Financial Risk Special Remediation Leading Group was set up to better monitor the 124 offshore trading platforms as well as “clean-up” and strengthen payment channel managements. The bank noted that roughly 3,000 accounts previously engaged in digital currency transactions have already been closed.

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Lastly, the bank said the group was also formed to “closely monitor” ICO’s and their variants, improve research and judgment, prevent problems early, and send out clear regulatory signals to the market.

“[W]e remind consumers and investors to enhance their awareness of risk prevention and not to follow suit, such as discovering various types of ICO variants and organizations or individuals that continue to conduct ICO and virtual currency transactions for domestic residents through the deployment of overseas servers,” the bank concluded in its statement.

While China remains strict on its cryptocurrency policy, the country as a whole, however, is enamored with the technology behind digital currencies: blockchain.

Earlier this month, the Industrial and Commercial Bank of China (SHA:601398) revealed its intentions to start using blockchain in its business practices. Local reports indicated the bank would look to find solutions for “smart banking application scenarios” using blockchain.

The People’s Bank of China is also getting its fill of blockchain. Shanghai Securities News reported in early September the bank had rolled out the first phase of testing for its blockchain trade finance platform, which came two months earlier than expected.

Indeed — China is certainly a hot spot for all things blockchain except when it comes to cryptocurrencies.

That said, top cryptocurrencies like bitcoin and ethereum didn’t seem to react negatively to Tuesday’s statement from the People’s Bank of China: as of 4:07 p.m. EST, bitcoin had increased 0.96 percent over a 24 hour period to US$6,358.27, while ethereum was up 3.73 percent to US$208.02.

Don’t forget to follow us @INN_Technology for real-time news updates!

Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.

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