Go Ahead, Try to Stop Initial Coin Offerings

Good luck with that, China.

Photographer: Tomohiro Ohsumi/Bloomberg

China’s ban on initial coin offerings has provided a much-needed pause in the booming market, where people ranging from legitimate entrepreneurs to outright thieves attract money by selling digital tokens. But the move also raises a question: How can any government control a phenomenon that transcends national borders and rules?

The Chinese central bank’s decision to outlaw token sales is significant in part because the country has become an important hub for the digital offerings. As of July, Chinese platforms had raised nearly $400 million from more than 100,000 investors. It’s thus not surprising that digital currencies tumbled after the ban was announced.

Regulators in China and elsewhere have good reason to be concerned about coin offerings. Although they provide global entrepreneurs with a useful alternative to traditional venture capital — which is local, labor-intensive and often inaccessible — they are rife with abuse. Promotional campaigns — which can feature such celebrities as Mark Cuban, Paris Hilton, and Floyd Mayweather, and even billboards in Times Square — sometimes border on the downright predatory. About 60 percent of exchange-traded digital currencies end up dead or dormant.