What is forbidden has always been attractive, and the same is proving true with ICOs. Chinese newspaper ‘The Voice’ have published two articles claiming that the crackdown on digital currency is not succeeding, and that in fact ICO activity has intensified. In defiance of the government ruling, Chinese exchanges are continuing to provide their services to investors seeking “to take advantage of the tide of rising bitcoin prices.”
The article states that when the ban was announced, the “hot money network” of cryptocurrency exchanges was silent, but afterwards “platforms immediately set up overseas websites and continued to provide digital currency services to mainland users as overseas companies. They also illegally set up "contract transactions like futures.”
OKCoin, one of the four largest exchanges worldwide, is singled out as guilty of obfuscating its operations in China, and also offering unlicensed securities.
An investigation into the exchange was headed by a Mr. Yang, who told reporters that the platform has “neither the corresponding qualifications nor any supervision” necessary for operating legitimately as a digital currency futures trading platform, and that it has circumvented regulations by nominally moving the company overseas. The exchange purports to be “headquartered in Belize” with a team in Hong Kong, but Yang claims that in fact the entire company is operated “in Beijing, and the users are almost all Chinese.”
When Yang phoned the overseas offices detailed on the company website, he found the numbers in Ireland and Russia unreachable, and the numbers in Hong Kong and Singapore unanswered.
After the national ban was issued, OKCoin is thought to have transferred all user data and digital currency to the OKex Exchange, established outside China, but Yang claims that OKex customer service maintain that they have no connection with the China-registered OKCoin company.
When the Chinese authorities requested the closure of Chinese Bitcoin exchanges last September, OKCoin and Huobi, the two largest exchanges in China, were given leeway to operate until the end of October because they had not been involved in any Initial Coin Offerings.
ICO activity intensifies
The second article, published in The Voice’s technology supplement, claims that Chinese ICOs are also operating in defiance of the central government’s ruling, and that they have ‘intensified’ since the ban came into effect. The article relays the unfortunate experiences of Shanghai local Mr Zhang, who purchased a cryptocurrency called ‘Saucoin’ on the OKex exchange in January.
Allured by the white paper vision of subverting the live broadcasting industry with blockchain technology, he invested—only to watch it depreciate, and on further investigation discovered that the project founder was suspected of fraud. Not only that, but the white paper was “crude” and the development code underpinning the project was non-existent.
To further emphasise the dangers, the article explores the process of creating a deceptive ICO by copying pieces of code from successful whitepapers, acquiring the rating of dubious agencies, and then promoting the offering with celebrity backing.
Censorship is ‘embarrassing’
Deng Jiapeng, a Professor at the Law School of the Central University for Nationalities, reflects in the article on the need for regulations that fit the global character of crypto, rather than the rudimentary “one size fits all” model currently employed.
In the future, supervision should give digital money a "living way". Deng Jianpeng said, “The blockchain or digital currency has a very typical global character, resulting in a simple prohibition having no effect in the physical space” He also spoke of the need to crack down on criminal activity, and said that the “embarrassing situation of supervision [...] is worth rethinking.”
“The more the governments and the regulators tried to put a squeeze on bitcoin, the more we see that bitcoin is actually resilient" — Bobby Lee, BTCChina
His comments speak to the need for a global regulatory framework that fosters innovation and minimizes scams. Without this, it is unlikely that China can successfully target offshore exchanges, and will only succeed in redirecting trade through Hong Kong, Singapore and Japan.
This situation has led some to believe that it’s “only a matter of time” until the Chinese central bank will allow cryptocurrency exchanges to open up again. As Bobby Lee, the co-founder of one of the oldest Chinese Exchanges BTCC, told CNBC earlier this year:
“The more the governments and the regulators tried to put a squeeze on bitcoin, the more we see that bitcoin is actually resilient"