China’s ICO ban, backed up by news of exchange closures, hit the market hard. The latest financial directive to come from Beijing restricts ICOs from taking place, banning the mechanism as illegal fundraising. Additionally, all cryptocurrency exchanges in China must, by law, stop offering domestic coin trading and coin buying in Chinese yuan. The Chinese yuan (CNY) has been the third-largest market for bitcoin trading volume for most of 2017.
Whilst the ban could be seen as a ceasefire, spectators on all sides of the conflict will have watched with baited breath as bitcoin saw a dive to $2,981. However, just two days later, its value bounced back toward $4,000. The combined cryptocurrency market capitalisation rests at $137bn, gaining from the low of below $100bn just three days ago. There are a plethora of benefits to the ICO ban.
The Silver Lining
China, domestically, has stopped all yuan trading in coins, which will reduce the influence of the Chinese market on the cryptosphere. As trades begin to slow, removing newer and weaker players, larger exchanges can continue to trade between coins. One could assume that this presents a positive change to Bitcoin’s famously high volatility. As a result of China’s ban, not only has there been a dent in hype surrounding ICOs and coins, but the move also reflects a changing regulatory environment globally. As more regulators consider the important question of tokens, coins and currencies, investors that stand steadfast will see the ‘deadwood’ fall away.
Better Quality ICOs
Financial regulators in China intend the ban not to be received as a ban on cryptocurrency, but rather a temporary measure until there is an opportunity to clarify laws and issue licencing. Jason English, Vice-president of Protocol Marketing at Sweetbridge, commented that the ban, “seemed to be more of a stopgap in order to get some policies in place.”
Rob Viglione, co-founder of ZenCash, stated that “even if new rules aren’t ideal, they’re better than the uncertainty of potentially inferior regulation.”
A push for greater regulation and a ban in the Chinese market means that one will see the rise of better quality ICOs. This extends to better products (or more ready products), stronger whitepapers, clearer plans, companies seeking legal advice, a structured landscape, regulatory expectations and self-regulation. Cutting out get-rich-quick schemes will only make the remaining, genuine ICOs more attractive. Adhering to regulations, stricter requirements and meeting certain levels of development will ultimately make things harder for illicit activities.
Fall of Bitcoin Mining: The Rise of Altcoins
China is Bitcoin’s biggest mining ground and thus, without access to Chinese exchanges to trade yuan for coin, the mining in China could be disrupted, either from disheartening those individuals or making offloading coins more difficult. As such, miners could swap to alternative coins or the mining could move to other jurisdictions. If this was to be the case, bitcoin’s worldwide ecosystem could change, allowing growth room for alternative coins.
However, Russia could take up the reigns as the new mining champion, with news coming that companies utilising power plants plan to lease excess power to bitcoin miners. Such agreements have the potential to open larger bitcoin farms, as almost 30% of the cost goes to energy expenses. With cheaper and more available energy becoming available, this could supercharge mining and increase bitcoin’s prowess. Farms like Gazprom and EuroSibEnergo state that participants want to gain an edge over China and provide larger competition by utilising Russia’s cheaper energy rates.
Japan will also see boosts to mining initiatives from tech giants GMO and DMM. GMO recently announced that, with a $90m budget, it would begin testing a new 7nm semiconductor chip, and using a data centre in Northern Europe to jump on board crypto-mining.
Yet, the adaptability of bitcoin is its strength, as one has already seen. With rumours of a second fork, the Bitcoin Cash created out of the first fork has sprouted its own ecosystem. Perhaps China’s regulation, combined with the mining capacity and a separate technology culture could mix to create an entirely separate Asian coin.
The key component of bitcoin’s success was the decentralisation. No central authority had the power to influence trading prices nor levy rate changes against the market. Simply regulating the trading of currency or structuring ICOs will not remove this decentralisation.
Whilst the regulations are more important for companies seeking to use this mechanism as a method of financing, speculators will continue to trade in the coins regardless of the stringent rules that will be established. Before now, cryptocurrency technology has seen rises in adoption, from new applications of blockchain to Ethereum Dapps. The ecosystem is resilient and will not be prevented from innovating.
Mike Raytsin, the CEO of ICOBox opines :
‘Personally, I don’t think that the recent ban signifies the death of the ICO market.”
Bitcoin’s rise like a Phoenix shows that the cryptosphere will remain adaptable and regulation predicated on removing vulnerabilities to money laundering and terrorist financing will structure the ICO environment and provide clarity.
Regulators realise that completely banning cryptocurrencies is not only impossible but not desirable, the economic advantage provided both by the value they hold but also by the potential for innovation in technology far outweighs the potential of illicit use.
As has been seen, they are targeting the point of transference, where the mouth of the fiat river meets the crypto-delta, cryptocurrency exchanges. It is hoped that such moves bring stability to the market whilst simultaneously providing shelter for increasing innovation.