The Chinese government pivoted the cryptocurrency world with its landmark regulation outlawing token offerings Monday (also known as initial coin offerings or ICOs). Countries fall into three emerging categories of regulatory positions on token offerings: those who are in favor of regulation, those opposed, and those who have yet to comment – which is most.
There are many who believe the People’s Bank of China may have acted relatively early in the informal token offering debate that all countries will have to grapple with in their own ways. This recent regulatory action could have occurred sooner than those of other countries due to China’s greater exposure to, and potential liability from, cryptocurrencies and the token offerings they support. 2017 was a monumental year for token offerings, which raised more than $1.2 billion, and China may have been acting to shore up their markets before any more Renminbi capital was invested into crypto. Whatever the reason(s), this regulation was foreshadowed and the ramifications will potentially be playing out for years to come.
To better understand the Chinese governmental decision-making process behind the new regulation, ETHNews spoke with Clayton Dube, director of the University Of Southern California’s US-China Institute:
“China seeks greater control over currencies circulating in China, not less. Chinese leaders worry about a currency not under their own administrative control, let alone one not under any government or international organization. They are resentful of the US dollar’s dominance and have worked to increase the international profile of their own currency, the Renminbi (RMB), getting it included in the IMF’s special drawing rights basket and forging currency swap agreements with various countries. The emergence of cybercurrencies and now ‘initial coin offerings,’ while embraced by individual Chinese, have been regarded with suspicion by Chinese regulators. This crackdown is in character and should have been expected.”
Indeed, the Chinese banning of token offerings was likely, but that doesn’t mean this is a clear cut case of absolute regulation. China’s endgame is probably more complex. To better understand the possibility that China might restore the legal status of token offerings after buying time to develop sensible regulations, ETHNews spoke with ConsenSys’ head of global business development, Andrew Keys. Keys had previously traveled through China with Ethereum co-creator Vitalik Buterin and offered his thoughts about the token offering ban. “I think China has had an impeccable record of outlawing what turns out to be some of the best technology in the history of Earth: Google, Facebook, Bitcoin, to name a few. That being said, many times there have been temporary bans in China on products and services, while the government understands the various implications of those products and services, and I could see a similar path with respect to tokens.”
If China is just taking a break from the token offering feeding frenzy of 2017, it may be for self-preservation. A substantial percentage of global crypto-activity is conducted from China and if its central bank felt token offerings were creating too much liability, it may simply be stalling by way of stagnation. The National Internet Finance Association of China had alluded to this notion on August 30, five days before the token ban.
“China is obviously a large contributor to the global economy, and therefore a large potential contributor to the Ethereum ecosystem, but token sales are just one of the many functions Ethereum is capable of. I assume this will be a blip on the map. I think in order for Ethereum to grow up and evolve into the next generation of the database, the internet, and a new asset class, there has to be public policy mapping as well as regulation.”
Regardless of China’s motivations, the fact that it only banned token offerings and not cryptocurrencies, per se, is enough evidence to take a positive view of this regulation. Hopefully, if and when China returns to token offerings, the ecosystem will have made headway in marginalizing the effects that bad actors have had on token offerings. If China falls behind in related innovations, it may be the price paid for having been such a hotbed for the growing world of cryptocurrencies.