- China banned initial coin offerings (ICOs) and cryptocurrency exchanges in September 2017 due to concerns about money laundering, fraud, and risks to financial stability. - The ban affected cryptocurrency markets globally and caused some businesses to relocate from China to other regions like Hong Kong and Singapore. - There is no international consensus on regulating cryptocurrencies, and other countries are considering whether to follow China's lead in restricting certain activities. - The report discusses implications for regulation in different jurisdictions and the cryptocurrency market, concluding with remarks on risks Finnish companies operating in the sector may face in Southeast Asia.

1. OTSIKKO
ALAOTSIKKO, KUUKAUSI VUOSI
SIGNAL: CHINA CRACKS DOWN ON
CRYPTOCURRENCY – IMPLICATIONS AND INSIGHTS
FOR FINLAND

2. SUMMARY
• China banned initial coin offerings (ICOs) and
cryptocurrency exchanges in September 2017.
• The ban has affected and will continue to affect the
regulatory landscape of cryptoeconomics as well as
the markets in Southeast Asia and globally.
• This report discusses the ban in general as well as its
implications on different regions with a focus on
Southeast Asia.
• The report concludes with some remarks regarding
the bans’ possible implications for Finnish companies.
Team Finland Future Watch Report, November 20172

3. CHINA’S BAN OF ICOS AND
CRYPTOCURRENCY EXCHANGES
Team Finland Future Watch Report, November 201733

4. CHINA’S BAN OF ICOS AND CRYPTOCURRENCY EXCHANGES
Team Finland Future Watch Report, November 20174
…transferred to
regions that provide
higher investor
protection, like Hong
Kong and Singapore.
The People’s Bank of China (PBoC) banned fundraising
through ICOs on the 4th of September 2017. In addition,
China also shut down the countries cryptocurrency exchanges
at the end of September 2017.
By the 22th of September 90 per cent of the money invested
in ICOs during 2017 had reportedly been returned to the
investors. According to the Chinese government more than
1.1 billion had been raised in over 65 ICOs between January
and August 2017 which indicates that the amount of returned
investments is approximately 1 billion. However, according to
some, the money was actually not returned but transferred to
regions that provide higher investor protection, like Hong
Kong and Singapore.

5. CHINA’S BAN OF ICOS AND
CRYPTOCURRENCY
EXCHANGES - WHY?
Team Finland Future Watch Report, November 20175

6. CHINA’S BAN OF ICOS AND CRYPTOCURRENCY EXCHANGES
– WHY?
Team Finland Future Watch Report, November 20176
…stems from a need
to protect the
Chinese financial
markets and some
also consider the ban
as a strategic move
by China.
The Chinese government stated that the purpose for the
crack down on cryptocurrency, or tokens, is its fight against
money laundering and fraud. Before the ban ICOs where
completely unregulated and some of the ICOs were scams.
Bitcoin trading already faced high regulatory oversight before
the ban with a focus on the limits set by know your customer
(KYC), anti-money laundering (AML) and consumer protection
(no margin or zero-fee trading) regulations.
However, industry experts have stated that the ban of ICOs
and cryptocurrency exchanges rather stem from a need to
protect the Chinese financial markets and some also consider
the ban as a strategic move by China. A decentralised
cryptoeconomy might be seen as a risk in China and the ban
gives the country time to consider whether and how it wishes
to regulate cryptocurrency.

7. CHINA’S BAN OF ICOS AND CRYPTOCURRENCY EXCHANGES
– WHY?
Team Finland Future Watch Report, November 20177
The ban of ICOs and
cryptocurrency
exchanges is also
compatible with the
CPC’s aim to curb
corruption, fraudulent
fundraising and
speculative investment.
It is also noteworthy that the clamp down took place shortly
before the 19th national congress of the Communist Party of
China (CPC) and it can possibly be seen as an attempt to
secure economic and social stability ahead of the nation’s
most important political event. The ban of ICOs and
cryptocurrency exchanges is also compatible with the CPC’s
aim to curb corruption, fraudulent fundraising and speculative
investment.
Some experts believe that the ban of ICOs and
cryptocurrency trading will fade away once the party congress
is over and/or when China has had the opportunity to enforce
additional regulation. Other experts, on the other hand,
believe that the ban will stay in place and that China will fulfil
its plans on issuing its own sovereign digital currency.

8. CHINA’S CENTRAL BANK PLANNING TO
ISSUE ITS OWN CRYPTOCURRENCY
Team Finland Future Watch Report, November 20178

9. CHINA’S CENTRAL BANK PLANNING TO ISSUE ITS OWN
CRYPTOCURRENCY
Team Finland Future Watch Report, November 20179
…the central bank
aims at issuing a
digital currency
among all other
crypto-currencies
with the only
difference being that
its state-owned.
The Director of the PBoC Digital Currency Research Institute
and the Deputy Director of the PBoC’s Science and
Technology Division, Yao Qian, stated that the bank is
currently researching the possibility of a central bank-issued
cryptocurrency.
While speaking in Beijing on the 4th of November 2017 Qian
noted that the central bank aims at issuing a digital currency
among all other cryptocurrencies with the only difference
being that its state-owned. Further, Qian stated that “virtual
currency is easier to trace, allowing the central bank to
monitor its velocity and the whereabouts of the money and
improve its monetary policies accordingly”.

10. IMPLICATIONS – REGULATION
Team Finland Future Watch Report, November 201710

11. IMPLICATIONS - REGULATION
Team Finland Future Watch Report, November 201711
Different
jurisdictions treat
crypto-currencies
variously, with some
identifying them as
assets, commodities
or currencies...
No global consensus exist on whether or how
cryptocurrencies should be regulated. Sovereign governments
feel a need to regulate the cryptoeconomy when a substantial
part of consumers in a certain geography get exposed to it.
This is, however, challenging due to the decentralised nature
of crypto.
Different jurisdictions treat cryptocurrencies variously, with
some identifying them as assets, commodities or currencies
and some struggling with determining whether all or only
some of the tokens are to be considered as securities.
Singapore e.g. treats cryptocurrency as an asset but the
Monetary Authority of Singapore (MAS) has stated that “digital
tokens through ICOs that are determined to comprise
securities will be subject to the regulatory requirements of
securities. Further, the authority stated that more targeted
legislation is to be considered if needed.

12. IMPLICATIONS - REGULATION
Team Finland Future Watch Report, November 201712
…other nations
consider whether
they should follow in
Chinese footsteps
and illegalise ICOs
and cryptocurrency
trading.
MAS gave its statement a few weeks after the bank accounts
of a significant amount of companies providing cryptocurrency
and payment services had been closed in Singapore due to
the uncertainty of the legal status of tokens.
This uncertainty most likely stems from China’s clamp down
on cryptocurrencies. It made other nations consider whether
they should follow in Chinese footsteps and illegalise ICOs
and cryptocurrency trading. So far, South Korea has banned
ICOs and the Securities and Futures Commission (SFC) of
Hong Kong has stated that some offerings will face regulatory
scrutiny. Russia, on the other hand, is also planning to issue
its own state-owned cryptocurrency called the CryptoRuble.

13. IMPLICATIONS – THE MARKET
Team Finland Future Watch Report, November 201713

14. IMPLICATIONS – THE MARKET
Team Finland Future Watch Report, November 201714
…the ban has mainly
required businesses
to relocate their
activities.
The cryptocurrency ban initially led to a fall in cryptocurrency
prices, especially bitcoin and ether, but most of the
cryptocurrencies have now recovered. China's ruling has also
enabled Japan's bitcoin exchange, bitFlyer, to become the
largest in the world by some methods of counting. South
Korea has also experienced a sudden growth in bitcoin
trading and many blockchain companies that used to operate
in China have re-registered their companies in Hong Kong
and Singapore.
The decentralised nature of crypto has enabled companies
operating with cryptocurrencies to simply move their
investments and trading to other countries. The ban has also
been circumvented by increasing peer-to-peer investment
done in private instead of crowdfunding through ICO
platforms. Thus, the effects on the stateless cryptocurrency
market have not been that significant and the ban has mainly
required businesses to relocate their activities.

15. INSIGHTS FOR FINLAND
Team Finland Future Watch Report, November 201715

16. INSIGHTS FOR FINLAND
Team Finland Future Watch Report, November 201716
Finnish companies
operating with
cryptocurrencies
should consider
regulatory risks in
Southeast Asia
As stated above, China’s ban has implications for the
regulatory landscape of cryptoeconomics as well as the
market in both Southeast Asia and the rest of the world.
Finnish companies operating with cryptocurrencies should
consider regulatory risks in Southeast Asia due to the current
uncertainty related to the legislative landscape of
cryptocurrencies in the region.

17. Tekes - the Finnish Funding Agency for
Innovation
Porkkalankatu 1, Helsinki
Post address
P.O. Box 69
FI-00101 Helsinki
Sari Arho-Havrén
+852 6895 5221
sari.arhohavren@tekes.fi