The People’s Bank of China, together with six other Chinese regulators, released a statement on Monday morning that deems ICO issuance “a kind of non-approved illegal open fund-raising behaviour”.
The regulator has said it will strictly punish companies that run ICOs and is asking those that have completed ICOs to return investors’ funds.
The ICO market has accounted for over $400m of financing in China during the first half of this year, according to Chinese financial news outlet Yicai.
The move to ban ICOs was expected after rumours surfaced last week, but has nevertheless caused a drastic sell-off in the cryptocurrency market. Ethereum, the main blockchain on which most ICOs are hosted, experienced a more than 12% fall in its market cap to $28bn on Monday.
NEO, a Chinese-based competitor to Ethereum, was even more drastically affected, losing more than 27% of its market cap to hit $1bn on Monday.
Some in the cryptocurrency community believe that the sell-off is premature and that Monday’s announcement may be a temporary measure designed to control the market while more specific regulation is put into place, with some even speculating that NEO may be hoping to become a kind of state-approved service for ICO hosting.
The sell-off also caused Bitcoin (the first cryptocurrency) to reverse the gains that took it over $5,000 for the first time on September 2, dropping it to $4,400.
China’s ban is the latest in a string of regulatory developments from financial authorities around the world. The US Securities and Exchange Commission began the race at the end of July, issuing a report that deemed tokens issued by the Decentralized Autonomous Organization to be securities under the Howey Test.
Since then, Canada and Singapore have followed suit, with Russia expected to be next. Nevertheless, it seemed companies were ignoring the growing chorus of regulators, with only a handful of ICOs cancelled or delayed.
Protostarr, an application that was intended to “use smart contracts to invest in an up-and-coming content creators” and which began an ICO on August 13, was contacted by the SEC last week and has shut down all operations and returned the funds raised in its ICO.
Harbour, a decentralised autonomous organisation for managing and holding token assets, has announced that, in light of the SEC’s report, it will delay its ICO “to ensure 100% compliance”.