Bitcoin tumbled more than 11.4 percent as the central bank of China declared that coin offerings are illegal and to immediately halt all fundraising through initial offerings. The People’s Bank of China said on its website that it conducted extensive investigations into the initial offerings of digital currencies and declared them illegal while promising to severely penalize anyone who pursues digital coin offerings in the future.
The Chinese bank also said that it will penalize anyone who has participated in offerings that are already completed, and said those individuals must provide refunds to the bank. The bank did not outline how it expects to pay investors back who investing in completed offerings.
China said that digital currencies cannot be used as money in any markets or banks, and it cannot convert fiat currencies with digital currencies. Jehan Chu, a partner with Kenetic Capital located in Hong Kong, said the Chinese government’s ruling is in line with what many other municipalities are doing when it comes to digital currencies.
Over the past year, digital currencies have seen a dramatic rise in investor popularity and value, most of which has gone unregulated or unchecked. China believes digital currencies are a threat to the stability of its financial markets, especially those that extend beyond China’s regular banking system. However, China did not specifically mention the widely popular digital currency Bitcoin.
Unlike traditional IPOs that offer investors’ shares of a specific company, digital currency IPOs give investors virtual tokens. The only way for the virtual coins to grow in value is if the network or business offering the tokens proves legitimate and viable in the digital currency industry. Many speculators believe that Bitcoin is a viable digital currency with the recent invention of blockchain technology. The blockchain is a type of virtual accounting ledger that records cryptocurrency transactions publicly and chronologically.