China bans initial coin offerings and orders refunds from token sales

The People's Bank of China and other regulators on Monday declared initial coin offerings illegal, describing them as a form of unauthorised public fundraising. Projects that have already raised money were told to arrange refunds.

The statement also warned banks and payment companies not to provide services connected to token sales, and said trading platforms must not exchange tokens for fiat currency or act as a central counterparty.

ICOs have become a fast-growing way for crypto projects to raise money by selling new tokens directly to the public, often with little more than a white paper. Regulators in several countries have raised concerns about fraud, lack of disclosure and the resemblance of many tokens to unregistered securities.

Crypto markets reacted quickly. Bitcoin and ether both fell, and many smaller tokens linked to Chinese projects dropped more sharply. The decision raises further questions:

• Whether China will move against domestic crypto exchanges next
• How projects will process refunds to investors
• Whether other governments follow with similar bans or opt for registration rules

In the US, the Securities and Exchange Commission has already said some tokens may be securities. China's move is more direct and signals that Beijing is prepared to act quickly when it sees financial stability risks in new markets.