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Bitcoin slumps as China clamps down on digital tokens

So-called virtual currency bitcoin tumbled the most since July after China’s central bank said initial coin offerings are illegal and asked all related fundraising activity to be halted immediately – issuing the strongest regulatory challenge so far to the burgeoning market for digital token sales.

The People’s Bank of China said yesterday that it had completed investigations into ICOs, and will strictly punish offerings in the future while penalising legal violations in ones already completed. The regulator said that those who have already raised money must provide refunds to investors.
It also said digital token financing and trading platforms are prohibited from doing conversions of coins with fiat currencies.

Digital tokens can’t be used as currency on the market and banks are forbidden from offering services to initial coin offerings.
“This is somewhat in step with, maybe not to the same extent, what we’re starting to see in other jurisdictions – the short story is we all know regulations are coming,” said Jehan Chu, managing partner at Kenetic Capital in Hong Kong, which invests in and advises on token sales.

Bitcoin tumbled as much as 11.4pc, the most since July, to $4,326.75. The rival ethereum cryptocurrency was down more than 16pc.
A cross between crowdfunding and an initial public offering, ICOs involve the sale of virtual coins mostly based on the ethereum blockchain, similar to the technology that underpins bitcoin. But unlike a traditional IPO in which buyers get shares, ICO backers gets virtual tokens – like mini-cryptocurrencies that may grow in value if the startup’s business succeeds.

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