Cryptocurrencies got a lesson in state power today…
China, like the United States, is cracking down on initial coin offerings (ICOs).
This action created panic in the digital currency world. Bitcoin, already reeling after a round of sell-offs at the $5,000 mark, continued to move downward.
Ethereum is a similar story, moving downward from a two month high near $400 to $306.
Litecoin dropped from an all-time high to $68.
So what does this news mean?
In the world of cryptocurrency, people have to wait to make a final call. But this decision from China could trigger other regulatory measures that could affect the cryptocurrency space — from Bitcoin to the altcoins the lead cryptocurrency spawned.
Beyond that, China’s crackdown on ICOs could hurt Chinese demand for Ethereum.
Let’s look at the facts.
The China Facts
Chinese news outlet Caixin reported the news. A notice had been released from the commission monitoring China’s internet financial security stating that new projects raising money through ICOs will be banned in China.
Furthermore, existing projects would be inspected.
This massive crackdown appears to be a group effort.
CNBC published research stating that a handful of financial and regulatory powers have expressed concerns about initial coin offerings in China.
This includes, “the People’s Bank of China, China Securities Regulatory Commission, China Banking Regulatory Commission and China Insurance Regulatory Commission”
All these institutions reiterated that ICOs are an unauthorized form of crowdfunding.
Organizations and institutions that helped with or participated in an ICO should make arrangements to return funds to investors.
At this point, it’s worth noting that a similar situation took place in the United States earlier this week. The Securities Exchange Commission said they would start cracking down on initial coin offerings a while ago.
Americans witnessed that first crack down on Friday, when the SEC contacted Protostarr shortly after the company completed their initial coin offering. Protostarr says they plan on returning funds to investors after the SEC contact.
So What Does This Mean For Digital Currency?
There is no dancing around the fact: ICOs have influenced the digital currency market.
Surrounding multiple large ICO events, Bitcoin and Etheruem witnessed price surges and dips.
To date, East Asia — specifically China — does provide a bulk of Ethereum and digital currency demand.
Ethereum is valuable because of its ability to act as a platform for decentralized applications.
But it’s also valuable for its ability to act as a currency.
Many investors have turned to Ethereum and Bitcoin to invest in initial coin offerings.
If ICOs are banned in China, it could affect demand for Ethereum.
In the short-term, it could be a positive for Etheruem’s price. As I noted above, the ICOs will have to return Ethereum to the investors, pushing more Ethereum back into the network.
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