Report: China's Regulators Close to Taking Action Against ICOs

Regulators in China have reportedly made up their mind to crack down on initial coin offerings (ICOs), the nascent funding mechanism through which blockchain projects have now raised more than $1.8 billion.

According to a report from Caixin, although the official statements have not been published yet, regulators have deemed ICOs to be violating fundraising laws, a determination that could lead to harsh regulations on the blockchain use case.

On the news, a conference devoted to ICOs in Beijing, scheduled on September 2, has been cancelled.

The decision is notable as it comes at a time when global regulators are considering their position on ICOs, and the People's Bank of China, the country's central bank and financial regulator, has been chief among this group.

Quoting an anonymous source, Caixin reported that researchers in PBoC have been studying ICOs and have reached a conclusion that many are covers for illicit activity.

The report states:

"More than 90% ICO projects could be violating illegal fundraising or fund fraud laws. The percent of project that is actually raising funds for investments is less than 1%."

Adding to that, the source pointed out that authorities and legal experts reached a conclusion that many ICOs are just "wearing a vest of legitimacy," while in essence, they are illegal fundraising.

Notably, even if the ICOs are cleared of suspicion on illegal fundraising, the source says, they could be violating fraud laws.

However, the report is inconclusive on whether regulators see value in using cryptographic tokens for startup funding, though the source suggested possible distinctions and carve-outs could be made.

"Cracking down ICOs helps to target the leading sheep of a flock, meanwhile, there will be some exemptions for people who are just following the flock," the source said.

CoinDesk will continue to monitor this developing story.

People's Bank of China image via Shutterstock