Warning on ICO, virtual currency trade

Source: Xinhua | 2018-01-30

A Chinese Internet finance guild warned domestic investors about risks in trading overseas “initial coin offerings” and virtual currency transactions.

“Investors should be alert to risks from overseas ICOs transactions as some of the transaction platforms have been shut down and others restricted from logging on,” the National Internet Finance Association of China said in a statement. “As there are no specific regulations, overseas ICOs transaction platforms face risks in system security, market manipulation and money laundering.”

ICOs allowed companies to issue “tokens,” or cryptocurrencies, to investors in exchange for currencies of more liquid value such as bitcoin, without the need to follow rules associated with traditional channels such as initial public offerings.

Unlike IPOs, in which investors buy stocks in companies, investors in ICOs receive digital coins developed by the firms, which could appreciate in value if the companies fares well and demand for their currencies grows.

“ICOs, in essence, are a kind of unauthorized and illegal public fundraising, which are suspected of being related to criminal activities such as financial fraud and pyramid schemes,” according to an earlier statement from the central bank.

China has toughened regulation over bitcoin and other digital cryptocurrency to rein in financial risks, with exchanges closed and trading halted.