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How FinTech Start-ups in SEA Are Taking China’s ICO Crackdown

The Tales From The Crypto plot thickens

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BY Tricia V. Morente - 08 Sep 2017

PHOTO CREDIT: Getty Images

Another plot twist to the ever-evolving narrative surrounding cryptocurrency: China, last September 4, banned and outlawed any new project raising cash or virtual currencies through initial coin offerings (ICOs).  

Not one to mince words, Asia’s largest economy — through a joint statement issued by a committee led by China’s central bank — announced that “all types of currency issue financing activities shall cease immediately,” and further demanding that “persons or organizations who have completed ICOs shall refund the investors, protect the investors’ rights, and deal with the risks properly.” Finally, it concluded by cautioning entities refusing to cease ICO activities or refund investors that they “will be investigated and severely punished according to the law.”

Needless to say, this sent a shockwave running through the crypto community as many ICOs rely heavily on Chinese funds. Market cap was dealt a huge blow following the announcement, declining nearly 25% from an all-time high observed earlier the same week. But as Wednesday’s trading session illustrates, this lasted only a few days as the value of all publicly traded cryptocurrencies eventually climbed — from Tuesday’s $134 billion low, as of this writing, market cap rose to $163 billion.

The event raises two questions: Why did China take such drastic measures? And is China even the villain in this scenario?

FinTech founders out of Southeast Asia weigh in on the topic...

A step in the right direction
According to Dr. Julian Hosp, co-founder of Singapore-based TenX which makes “digital currency spendable anytime, anywhere,” many people in China refer to ICO tokens as “tradable air,” giving it a very negative connotation on even the properly done ICOs.

“China is worried and just wants to protect its citizens,” says Hosp, pointing to what New York-based Chainanalysis reported, that the concept of ICOs has attracted cyber criminals with an estimated 10 percent of money intended for ICOs being looted away by scams.

Hosp, who has been very critical about how most ICOs are run, relates that he welcomes regulations to a certain degree. “The prevalence of these pump-and-dump schemes can be largely attributed to the lack of regulation in the ICO ecosystem. Regulations would make sure that there will be fewer and fewer so-called borderline ICOs scamming people,” he says.

Pavel Bains, CEO and co-founder of blockchain solutions company Bluzelle, concurs this is “a step in the right direction because it stops the bad actors.” He furthers, “Many of us knew something like this would happen. As long as you build a solid business, with proper fundamentals, it should not affect you. It also forces newbies to educate themselves.”

Stepping up regulations  
Even with China opting to take a different regulatory approach compared to the U.S. Securities and Exchange Commission and the Monetary Authority of Singapore, the ban doesn’t necessarily mean it is giving up on fintech or even digital currency.

In an article for Forbes, Kenneth Rapoza writes, “China has real concerns about ICOs and perhaps Beijing is worried at the speed in which this technology is being adapted right under their noses. But while this hurts cryptocurrency developers and other start-ups from raising unconventional capital, it is unlikely to stop China’s fintech industry from developing.”

While China is certainly a large and important pool of capital, Ron Hose, founder and CEO of Philippines-based Coins, a blockchain-enabled financial services platform, points out that the digital currency markets are global and significantly larger than any country.

“Other jurisdictions will likely see this as an opportunity to become leaders in this early sector,” says Hose, adding “it is understandable that Central Banks need time to evaluate ICOs, and ensure regulation is in place to protect the public. It’s likely that this ban by the Chinese government will give regulators some time to see how the ICO market affects other regulatory jurisdictions before re-entering the water.”

Other countries will probably not take such drastic measures as China has done by prohibiting ICOs, surmises Hosp, “But I believe and actually hope that more governments will begin to step in and introduce certain regulations.”

As far as the fintech space is concerned, Bains believes that “if anything, it makes things better.” For Bluzelle’s part, he says, “We have been building a solid business for three years now, we have history, and the right partnerships. This should make people more comfortable with us in the future if we do a sale.” 

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