ICO regulatory policy may be issued by the end of the year, and Beijing may take the lead

According to Economic Observer, the ICO regulatory policy that has attracted widespread attention from the market recently may be issued at the end of the year, and Beijing may carry out supervision in advance.

ICO is the abbreviation of Initial Coin Offering, which is highly similar to the IPO in the stock market: a project party issues a unique token through the Internet, and uses this token to raise digital virtual currencies with good liquidity such as Bitcoin from users. After that, the funds can be raised by selling these virtual currencies.

Yesterday, Wall Street Journal mentioned that ICOINFO, a well-known domestic ICO project platform, issued an announcement stating that in order to prevent risks, it will proactively suspend all ICO business from now on, and conduct business in accordance with policy regulations after the relevant departments introduce regulatory policies.

How crazy is ICO?

NetEase Technology reported earlier that, "When I opened my eyes, there were 200 million more in my account! The brothers around me were worth millions more! Can you imagine this?" Such "inspirational stories" are widely circulated in the ICO circle.

The market value of the leading digital currency Bitcoin accounts for more than 40% of the total market value. Since the beginning of this year, the price of Bitcoin has risen by 360%, but the market value of the entire digital currency market has increased by 800%. The market value of the entire market has increased by as much as 158.5 billion US dollars (more than 1 trillion RMB), which exceeds the legal currency value of most countries in the world.

The rapid expansion of the digital currency market is mainly due to the expansion of the "token" ecosystem. Some new coins issued through ICOs are hyped up in the community, and their prices can increase hundreds of times in a short period of time. The extremely high profits continue to attract players to enter the market, and the digital currency market is constantly expanding like a snowball. For example, "Dogecoin", which was born as a joke, has a market value of 200 million US dollars.

Currently, ICO is developing rapidly. The "2017 First Half Domestic ICO Development Report" released by the National Internet Financial Security Technology Expert Committee in July shows that as of July 18, 2017, a total of 65 ICO projects have been completed in China. Among them, 5 projects were launched and completed before 2017, 8 were launched from January to April this year, 9 were launched in May, 27 were launched in June, and 16 were launched and completed in July (as of the 18th).

From the perspective of ICO platforms, the platforms with the largest financing amounts are ICOAGE (the operating entity is Shanghai Qukuai Information Technology Co., Ltd.), ICOINFO (the operating entity is unknown) and ICO365 (the operating entity is Shenzhen Zhonglian Technology Co., Ltd.), accounting for 30.7%, 22.9% and 10.6% respectively.

Behind the ICO craze are players who flocked to the game because of the huge profits. NetEase Technology quoted a senior player as summarizing that "ICO's huge profits have exceeded drug trafficking." So-and-so has made tens of millions again. This is an inspirational story in this circle.

Illegal fund-raising or pyramid scheme fraud? China Securities Regulatory Commission and China Banking Regulatory Commission both take action against ICO

According to Yicai Global, the China Securities Regulatory Commission is currently seeking opinions from some blockchain companies on ICOs. The CSRC is particularly concerned about ICOs that use virtual currencies as a cover for pyramid schemes and fraud.

China Business News quoted Sun Ming, a partner at Broad & Bright Law Firm, as saying that some blockchain (distributed ledger) projects are purely for the purpose of raising money, and they deliberately create "non-essential tokens" in the projects to initiate crowdfunding in order to please the public. In fact, these "tokens" only have a few non-substantial functional uses in the project's system and are not indispensable.

Considering the securities-like characteristics of ICO tokens, it is not impossible for regulators to formulate some special restrictions on ICO product crowdfunding in the future. The most likely one is to restrict the circulation and trading of tokens on major exchanges (although the borderless nature of digital encryption tokens makes it difficult for any specific country to achieve effective regulation).

Wall Street News mentioned on the 29th that on the 24th, the China Banking Regulatory Commission drafted the "Regulations on Dealing with Illegal Fund-raising (Draft for Comments)", which listed a series of situations in which the departments responsible for dealing with illegal fund-raising should initiate administrative investigations. It is worth noting that these situations include illegal fundraising in the name of virtual currency.

The China Banking Regulatory Commission pointed out that currently illegal fund-raising is mainly carried out in the form of directly absorbing public deposits and investment and financial management, while illegal fund-raising in the name of virtual currency, consumer rebates, private equity investment, etc. is emerging in an endless stream and in a variety of ways, which is very confusing and difficult to identify.

According to Caixin, China's relevant regulatory authorities will take action against ICO in the near future, and even do not rule out the possibility of directly banning ICO before the regulatory and legal system is ready to include ICO.