Panic sell-off: Cryptocurrencies lose over $36 bn in m-cap as China cracks down on ICOs

A Bitcoin (virtual currency) coin is seen in an illustration picture taken at La Maison du Bitcoin in Paris, France, June 23, 2017. REUTERS/Benoit Tessier/Illustration - RTS18C0W

China’s central bank has declared initial coin offerings (ICOs) as illegal and has demanded that all fundraising activities through this medium to stop at once.

As reported by Chinese news outlet Caixin, the central bank's document labels ICOs as an unauthorized fundraising tool that may involve financial scams and pyramid schemes, and which “severely disrupt the social and economic order.”

“The committee also provided a list of 60 major ICO platforms that local financial regulatory bodies will need to thoroughly inspect and report on,” Caixin states.

Initial coin offering or ICO is a crowdfunding method where new cryptoassets raise capital in exchange of new tokens with established ones like bitcoin, ether or even with fiat currencies like the US dollar.

In the first six months of 2017, Chinese investors have pumped 2.6 billion yuan (USD 394 million) in ICOs, a government study said. The study further assumes this number to be much larger as it did not include sales through private placements, as per Caixin.

Reports from the Chinese media in recent days had suggested that the government might soon crackdown on ICOs.

On September 2, Caixin reported that authorities had shut down a blockchain conference over the weekend on concerns that unregulated initial coin offerings (ICOs) were being used to raise funds illegally.

Since then, price pullback started in the market over the weekend and saw extended losses today after the news became official.

The cryptocurrency market has lost close to USD 36 billion in value since Friday and currently stands at USD 142 billion as per coinmarketcap.

After peaking close to levels of USD 180 billion, the total market cap of cryptocurrencies has dropped around 20 percent as of time of reporting.

Panic sell-off in newly formed cryptoassets is the major reason behind this drop.

Tokens like Achain, YOYOW, Hshare and many other have seen a correction of over 40-60 percent in the past 24 hours.

There has been heavy selling in some of the popular virtual currencies as well but it nowhere near compared to the sharp dip in the newly formed cryptoassets.

Bitcoin, the most dominant currency by market cap, saw close to a 7 percent drop to levels of USD 4300 on major exchanges globally.

Among the top ten currencies by market cap, except for bitcoin all others were down by double digits at the time of reporting.

Ethereum, litecoin and iota — all three witnessed the steepest fall of around 16 percent each, at the time of reporting as per coinmarketcap.

While experts say that such harsh measures might stifle innovation, regulators in countries like US and Singapore have also raised similar concerns regarding ICOs and plan to regulate the sector.

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