TOKYO -- A new Chinese ban on the use of digital currencies for fundraising sent the value of bitcoin and its rivals plunging on Tuesday.
The People's Bank of China and other authorities on Monday announced they would no longer allow initial coin offerings, branding these digital currency issuances illegal maneuvers that could disrupt the financial sector and the economy. Following the order, Chinese ICO platforms such as ICOage and ICOinfo halted their services.
As of 10:54 a.m. on Tuesday, the bitcoin price was down 10% from Monday, at $4,082. Ethereum, an alternative cryptocurrency, was down 19% at $276, according to market data provider CoinMarketCap. Bitcoin Cash, a bitcoin spinoff mainly used in China, was down 21% at $473.
By 9 that morning, digital currencies' total market capitalization had fallen by some $18.3 billion in a single day, hitting $146 billion. Investors expect the Chinese ban will hurt overall demand for the currencies, and reacted accordingly.
Companies were scurrying to adjust. ALIS, a social media venture in Hong Kong headed by a Japanese entrepreneur, launched a coin offering in Japan on Friday but announced via Twitter on Monday that it was suspending its Chinese site and that one Chinese team member would leave.
Even so, Masahiro Yasu -- an ALIS founder and an employee of major staffing company -- said his startup has felt no major impact so far. ALIS hopes to raise 350 million yen ($3.2 million) for a social media platform that is not dependent on advertising.
China's state-run Xinhua News Agency reported that 2.6 billion yuan ($397 million) was raised through ICOs in the country in the first six months of this year. But the authorities say some ICO platforms amount to pyramid schemes.
Globally, ICOs have attracted some $1.5 billion so far in 2017, though some related fraud allegations have surfaced in the U.S. as well. In July, the U.S. Securities and Exchange Commission warned that digital currencies issued through ICOs may be classified as securities depending on the issue terms, and thus could be subject to regulations.
In any case, this is not the first time China has jolted the cryptocurrency market. The central bank in December 2013 told financial institutions to suspend bitcoin trading, prompting major exchanges to halt new deposits in yuan and sending bitcoin prices plummeting by one-third.
Since then, though, digital currency trading has recovered in China, helping to push prices to record highs.