Bitcoin: What China's crackdown means for Digital Currency

It’s been another rollercoaster ride for bitcoin. After breaking the $5,000 mark this weekend, the digital currency has dropped around 15%—in large part because China brought a screeching halt to the novel form of fund-raising known as “initial coin offerings.”

According to one expert, China’s ban on these ICOs—which have allowed companies to raise over $1 billion this year by selling digital “tokens”—will have both short and long term effects for bitcoin and other digital currencies.

“Chinese investors have played a crucial role in the growth of the ICO market and the recent rise in valuations,” says Robert Crea, an attorney with the law firm K&L Gates, who specializes in regulatory issues surrounding digital currencies. “The Chinese ban may impact liquidity in the ICO market by limiting the number of investors in the marketplace and the number of cryptocurrency exchanges. If Chinese investors are restricted from participating, markets could experience diminished liquidity, heightened volatility, and downward price pressure.”

China’s crackdown on ICOs follows similar moves by the United States, Canada, and Singapore in recent weeks, but appears to have had a larger impact on the market.

The ICO phenomenon began last year as startups realized they could raise large amounts of capital without the legal or regulatory constraints that go with traditional venture funding. In conducting “token” sales, the startups claimed the tokens provided a way for buyers to access new software programs they were building. But as the tokens can also be sold on digital currency exchanges, the ICOs in many cases resembled the sale of unlicensed securities.

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Source: Bitcoin: What China’s Crackdown Means for Digital Currency | Fortune.com