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Notes on PBC ICO Notice

September 5, 2017

Here is the notice + English translation

Some notes:

  1. There is an English/German loophole that this regulation doesn’t plug.  Basically English law says that you can sell anything you want, but it restricts being able to market and buy something.  German law restricts what you can sell, but there are few restrictions on buying and marketing.  So this was a standard loophole for creating products in England and selling them in Germany, which is part of what caused the financial crash.  It turns out that Mainland law is based on German law, and Hong Kong law is based on English law, and so the regulation doesn’t prevent you from letting people know that a non-Mainland ICO exists.
  2. With Mainland Chinese regulations, the important thing isn’t the actual wording of the regulations but rather you look at a) who issued the regulations and b) what the intent of the regulations are.  At that point, you really need to read the details.  Simply saying the “Chinese government has banned ICO’s” doesn’t tell you enough.  What you need to do is to dig into the regulations and figure out what exactly they are doing and why they are doing it.
  3. First of all, the most important thing about a Mainland Chinese notice is *who* issues the notice.  For example, I remember at one point, the Ministry of Culture issued some regulations on the internet which everyone ignored, because no one cares what the Ministry of Culture thinks.  In this situation, it was issued by the People’s Bank of China, the Cyberspace Administration Commission, the Ministry of Information Industry, the State Administration on Industry and Commerce, and the three financial regulations (Banking, Securities, and Insurance).  The order is important because it means that the PBC is the lead agency.  Also interesting is that the CAC is high up on the list.  Finally, it’s really interesting (and not surprising) that there were no law enforcement people in the list.
  4. The first thing that they are worried about is that they are worried about people getting scammed.  The second thing that they are worried about are people using ICO’s to evade capital controls.  The last thing that they are worried about is banks and other financial institutions getting involved in ICO’s.  These things happen to be things that they should be worried about.
  5. Using ICO’s to evade capital controls is why they’ve specifically banned ICO exchanges from exchanging with fiat, and they also specifically banned the use of coins to be used as cash (i.e. like tether).  What they are still allowing is to exchange ICO’s with BTC and ETH.  At that point they monitor the big BTC and ETH exchanges and use those to implement capital controls.  The thing about capital controls, is that the Chinese government doesn’t seem to mind if you move out USD 2 million or so.  They really, really do care if use this to move out USD 100 million, and it seemed pretty obvious to me that a lot of the big ICO fund raises in the Mainland were specifically to move out tens or hundreds of millions of USD.

Personally I think it’s a good thing, not withstanding the fact it’s giving my portfolio a short term hit.  I’ve been involved in an ICO that currently being marketed in Mainland China (Atlant ICO and also a regulated US hedge fund that’s investing in cryptoassets (Fund3 and another fund that is starting up (, and the environment in Mainland China was totally insane and quite unpleasant.  People were asking basically for money to get into the right wechat groups and on the exchanges, and this was annoying because no one seems to care about whether we were creating solid businesses, and it was pretty obvious that most of the coins that were getting listed were just garbage, but no one seemed to care.

That’s all been crushed, which is good since people will now start to care that the funds are going to actual real businesses.  My mind is working through the legal structures that are needed to work through the regulations, but they shouldn’t been too hard to figure out.


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