A crackdown on initial coin offerings (ICOs) in China has caused the value of Bitcoin to drop below the $5,000 mark.
ICOs have been declared illegal by the People’s Bank of China, the autocratic nation’s securities regulator, due to concerns regarding financial fraud and general criminal activity.
The phenomenon of ICOs has become extremely popular in recent months, with rampant speculation in competing cryptocurrencies driving up the value of their primogenitor, Bitcoin, briefly over the $5,000 (£3,850) mark.
As the change in law was announced, Chinese holders in ICO tokens began to sell off their assets, driving the value of Bitcoin back down to roughly $4,400 or £3,400.
Bitcoin’s value has shot up rapidly in recent years having hit a low of $213 (£138) in August 2015, and briefly hit its all-time high before the Chinese crackdown was announced.
China is seeking to strengthen its financial regulations just as it is strengthening its control of citizens’ access to the internet ahead of the 19th Party Congress next month, at which significant changes to China’s ruling Communist Party are expected.
ICOs work similarly to crowdfunding, with the name referencing the initial public offering (IPO) of companies which list on publicly traded stock markets.
Scepticism has risen in recent months as more startups have begun to turn to ICOs as a fundraising mechanism, despite the risk of “pump-and-dump” scams as well as the lack of regulatory protections leading to alleged frauds.
They effectively offer digital tokens which are tied to the value of the company and can therefore be used for trading or for speculation, although unlike publicly listed companies the owners of these tokens may anonymise themselves and avoid regulatory compliance.