Why China Won’t Ban ICOs Forever

The Australian government is currently on a witch-hunt for your cash. It started late last year when the government accused criminals of using $100 notes for nefarious purposes. The Reserve Bank of Australia then went a step further, claiming that criminals were more likely to use the $50 note…

Once the finger was firmly pointed at the crooks, the public discussions began: Just how much do we really need cash anyway?

The Australian Tax Office (ATO) and the Treasury department are currently ramping up their investigations into the cash economy. The government calls it the ‘Black Economy Taskforce’. The objection? Apparently, ‘sniffing out all those thieving tradies hoarding $50 and $100 notes they never paid tax on’…

Having been married to a tradie for a decade, I can tell you right now that they aren’t hoarding anywhere near the cash the government thinks. About half a dozen slabs of beer as payment for doing a job maybe…

But the Black Economy Taskforce isn’t really about uncovering lost tax revenue. It’s all part of the ruse. Seeking out lost government income plays on taxpayers’ outrage that anyone would dodge their civic duty.

No, it’s not about lost revenue at all. It is about making sure your opinion is swayed to slowly resent cash.

That way, when, say, your $100 note is whacked with an expiry date, you won’t mind so much.

At least that’s the plan from Michael Andrew, who heads the Black Economy Taskforce. He reckons that if nanochips were planted into our highest-denomination note, they’d know how many were being ‘hoarded’. Or what you might call savings…

The incentive for the expiry date however is that it would force you to spend before the note becomes worthless.

You can’t be turned against cash, until you don’t trust it. And once you don’t trust it, it’s easy to wage public war on it.

But Australia isn’t alone in this. China has started its own witch-hunt, under the same guise of ‘protecting the people’…

China targets ICOs

On Monday, word filtered through markets that the Chinese government had declared all initial coin offerings (ICOs) illegal.

An ICO is a form of funding start-up that companies are beginning to turn to. In exchange for investing your cash, people are receiving either newly-created cryptocurrencies or pre-existing ones like Bitcoin or Ethereum.

It’s true that the market is unregulated, which means that companies can completely bypass the rules that an exchange would place on a company wishing to go public.

In saying that, China’s crypto market is massive. While the authorities claim to be clamping down on scams and ‘pump and dump schemes’, that’s not the full reason for the shutdown.

The more likely reason for the tough stance on ICOs is because investing in them has become one giant tax avoidance method for Chinese investors. While around AU$482 million has been raised in the ICO market in China this year, it’s taking cash out of the economy — the money the Chinese authorities desperately need to keep economic growth moving along.

As Bloomberg explained:

China’s central bank said initial coin offerings are illegal and asked all related fundraising activity to be halted immediately, issuing the strongest regularly challenge so far to the burgeoning market for digital token sales.

The people’s Bank of China said on its website Monday that it had completed investigations into ICOs, and will strictly punish offerings in the future while penalising legal violations in ones already completed. The regulator said that those who have already raised money must provide refunds, though it didn’t specify how the money would be paid back to investors.

Not long after this, South Korea jumped on the bandwagon with a pledge to ‘strengthen levels of punishment’ for those looking to raise money through ICOs.

As a result, cryptocurrency prices have taken a beating. Bitcoin was knocking on the US$5,000 (AU$6,245) mark on Saturday, only to be down 13.98% late Tuesday night, to US$4,293. Nonetheless, the downturn didn’t last long. Already Bitcoin has bounced 3.79% higher, up to US$4,456 (AU$5,565).

Ethereum has taken most of the beating, down 28.20% since Saturday, the largest fall of the major cryptos. However, it’s not altogether surprising, since their blockchain technology is involved in a large number of ICOs.

In any case, this move by China is only temporary. It’s a small glitch as cryptos get set to dominate the globe.

Sam Volkering, editor of the Secret Crypto Network, has been watching this market for the better part of six years. Most people are just catching on to what cryptocurrencies are all about. As Sam explained to me yesterday:

The average crypto “expert” that’s been around for all of about ten minutes probably won’t know about, and clearly won’t remember when in November 2013 China “green lighted” bitcoin, only to turn around weeks later and put a block on Chinese financial institutions having anything to do with Bitcoin.

This sent the “price” in a spin. Eventually once they realised the potential to benefit their country, economy and people they again gave it the green light. Same thing is happening now with their crackdown on ICOs.

It’s China taking a breather to figure it out and figure out how to use it to benefit their country, economy and people — when they do (and they will) it will get the green light too. All this FUD now has come and gone before.

Revolutions don’t take a few months or a year, they take a generation or more. We’re still right at the start of it all, so just chill out and keep an eye on the bigger picture. And learn to deal with these bumps, because this ain’t the first nor last time something like this will happen.

China’s latest stance on ICOs is a mere blip in my view.

The way I see it, there is no doubt that bitcoin and other cryptocurrencies will overthrow the existing monetary system. How China’s authorities get the ICOs to hand back the cash remains to be seen however. But the ban won’t last. Sam’s right. China needs to work out how ICOs can benefit them.

Once the Middle Kingdom works out where ICOs sit — and possibly how to tax them — it will be back to business as usual.

Make no mistake about it, this is a money revolution. And we could potentially still be at the early stages of the rise of cryptos. For details on how you can join the revolution, click here.

Kind regards,

Shae Russell,
Editor, Markets & Money

Shae Russell started out in financial markets more than a decade ago. Working with a derivative brokering firm, she helped clients understand derivative markets, as well as teaching them the basics of technical analysis. Since joining Port Phillip Publishing eight years ago, Shae has worked across a number of publications. She holds the record for the highest-returning stock recommendation, in which a microcap stock returned over 1,200% in six months. Ask her about it, and she won’t stop yapping on. For the past two years, Shae has worked alongside Jim Rickards as his Australian analyst, translating global macro trends for Aussie investors, and how they can take advantage of these trends. Drawing on her extensive experience, Shae is the lead editor of Markets & Money. Each day, Shae looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.

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