South Korea follows China, Imposes ICO ban
Financial Services Commission of South Korea on Friday, announced that the state will ban the practice of raising funds through any and every form of virtual currencies including initial coin offerings – ICO. Earlier this month, China put a similar ICO ban and now it’s the Korea that seems to be concerned about the risks associated with the use of ICOs.
Growing concerns regarding ICOs
Despite the promising projects such as payments network Omise Go and Kik’s developer platform, the big players China and Korea have banned ICOs. This directs us to the risks associated with the outflow of ICOs. South Korea’s Financial Regulator expresses his concern regarding the increasing buzz about ICOs in South Korea.
Kim Yong-Beom, the chairman of Financial Service Commission (FSC) added:
"Raising funds through ICOs seem to be on the rise globally, and our assessment is that ICOs are increasing in South Korea as well. There is a situation where money has been flooded into an unproductive and speculative direction"
The Commissioner further stated that there have been several cases of fraud and other crimes that involve the use of cryptocurrencies. His statement further suggests that in many of such cases, cryptocurrencies have been used as a means of “laundering money” and that there’s also a high possibility of ICOs being frauds.
Not just this, even the big regulators such as the U.S., Singapore and Hong Kong have warned the investors that they may lose money and the company may “violate security laws”. It seems there’s a sparking concern regarding the increased risks of financial scams. This is what probably forced the government to take firm decisions on this part.
Impact of ICO ban
Prior to the imposition of the regulations concerning ICO ban, China had the largest share in the global cryptocurrency trading. Unfortunately, these restrictions on virtual currency’s outflow first by China, followed by South Korea had resulted in a huge drop of China’s share from 90 to 10 percent as of today. It seems Japan and the U.S. are the next major trading hubs.
Quite predictably, the ICO’s ban announcements have affected the price of Bitcoin and Ethereum. Bitcoin’s value has stepped down by three percent and Ethereum’s by 6.5 percent in the last 24 hours.
What is an Initial Coin Offering (ICO)
ICO is one of those forms of fundraising that gained popularity in no time. It works on a principle, similar to the venture capital model where the startup issues shares to the investors. However, in this case, the enthusiasts, the investors, and the supporters of the concept buys coins with virtual currency. These coins are called ‘tokens’ and function as shares sold in a typical Initial Public Offering transaction.