Joining China, The South Korean financial regulator on Friday said it will ban raising money through all forms of virtual currencies. I will be examining the real reasons behind this for clarity.
Last updated on May 16th, 2018 at 11:13 am
In case you’re unfamiliar, ICOs involve a person or organization selling digital currency (a.k.a. coins or tokens) to the public in order to finance a new blockchain-based software application or investment. While the tokens can be used within the application (when and if it’s finished), many people are treating them as a speculative investment.
A recent ICO mania has given rise to some blatant ripoffs in which companies take investors money but fail to build the promised blockchain application. The most recent being Maksim “Max” Zaslavskiy owner of The Diamond Reserve Club and ReCoin.
Joining China, The South Korean financial regulator have pledged to ban the raising of monies through all forms of virtual currencies. Let me clear up the misconception going around the internet that these countries “Banned All Crytocurrencies” This is not true! What is being banned is the ability of persons to raise monies through Initial Coin Offerings.
In this Opinion piece, I will identify the real reasons behind this move by two contrastingly different countries with the intention of putting you on your Guards..
Impossible Regulatory Oversight
In China alone, there are Seven government administrations including the People’s Bank of China, China Securities Regulatory Commission, China Banking Regulatory Commission and China Insurance Regulatory Commission who would have jurisdiction over Cryptocurrencies but it would be next to impossible to the Crytocurrency platform users bypassing the great firewall of China and most platform headquarters are not in mainland china.
Crytocurrencies are viewed as too volatile
“In May 2017, a 19 percent price fall for bitcoin saw nearly $4 billion in value wiped off” Over the years, we have realized that any major news about Bitcoin for example can cause it to fall or rise by double digits overnight. (Initial reports from Chinese media that the government plans to close down domestic cryptocurrency exchanges have seen the virtual coin shed more than $100 in one hour alone.) Anyone who has basic knowledge of financial markets will know that once you have a stock which can see a double digit rise or fall overnight is worrying both ways because a rise may cause suspicion and a fall will definitely result in a massive loss to an investor. State regulators exist to prevent or control these occurrences. In an article, CNBC is quoted as saying: “Because there’s bullishness in the market, some predict bitcoin’s price to soar as high as $100,000 in a decade.”
Everything is moving too fast
I am not against Cryptocurrencies personally because I do playfully invest a few thousand bucks in some of the more popular currencies but lets be honest; All of a sudden, in less than one month ago you see a “Company” registered in a questionable state flooding the internet with a ton of info-graphic Ads, having a nicely build website with SSL security, Facebook Fan page with thousand of followers and not one real person you know to vouch for them yet they are seeking to raise 10, million dollars through something intangible? There are countless 100% legitimate credit unions over 30 year old in the USA right now who can barely raise a million dollars even if all their branches were pooled together.
Definition of a Currency
“Bitcoin does not have the fundamental attributes needed to be a currency as it is a string of code generated by complex algorithms…But I do not deny that virtual currencies have technical value and are a type of asset,” Those are the words from Sheng Songcheng, Senior Policy adviser to the People’s Bank of China (PBOC). He made those comments in an interview with financial magazine Yicai published in July 2017.
Susceptible to fraud, Dark Web influence and money laundering
Regulators in the US, Mainland China, south Korea and Singapore have in recent months highlighted the risks of fraud and money laundering that investors are exposed to when buying into a digital token sale.
Recently, Singapore’s sole financial regulatory body and central bank, the Monetary Authority of Singapore (MAS), said in a that Initial Coin Offerings s are “vulnerable to money laundering and terrorist financing risks due to the anonymous nature of the transactions, and the ease with which large sums of monies may be raise in a short period of time.”
The all powerful American Securities and Exchange Commission (SEC) provides guidelines on its website for investors to consider before participating in token sales. Some of the key points the SEC asks potential buyers to consider are ways to identify fraudulent investment schemes.