China Cracking Down on “ICOs in Disguise”

China Cracking Down on “ICOs in Disguise”

China’s National Internet Finance Association (NIFA) has issued a warning that Initial Miner Offerings (IMO) may be ICOs by another name, and therefore illegal under Chinese law.

IMOs are a particularly Chinese phenomenon, emerging from the ICO ban of September 2017. Under an IMO arrangement, investors can buy mining hardware to process a specific token or currency and receive a percentage of mining rewards in return. 

China Accounts For 70% of All Crypto-Mining

NIFA is an internet finance self-regulation organisation with close links to the People’s Bank of China. Their statement describes IMOs as “ICOs in disguise” and names Xunlei’s Lianke token as a prime example. According to NIFA, Xunlei’s “frequent promotional activities have … lured many citizens without sound discernment into IMO activities.

Chinese authorities consider ICOs to be illegal on three counts: fundraising, security issuance and sale of notes and bonds. Friday’s statement confirms that “all institutions and individuals should immediately stop engaging in ICO activities,” adding that “Initial Miner Offerings (IMO) [have] emerged as a potentially risky model that warrants vigilance.

Reminding its members to beef-up their self-regulation and “refrain from participating in speculation of ICO or virtual currencies,” NIFA argued that the Lianke token “substitutes Lianke for the duty to pay back project contributors with legal tender” and as such is “a financing activity and a form of disguised ICO.

Though China accounts for 70% of all cryptocurrency mining, thanks to its supplies of cheap hydroelectric power, authorities seem to be masterminding a withdrawal from the industry.

The People’s Bank of China recently floated the idea that local authorities could wind down mining operations by choking them of electrical power.

Xunlei’s shares have fallen in value by more than a quarter since NIFA’s statement.