China’s Central Bank Warns of New Crypto Risks

China’s central bank hailed the success of a year-old ban on initial coin offerings (ICOs) but again warned investors of risks associated with foreign cryptocurrency operators.

In a notice published Tuesday by the Shanghai branch of the People’s Bank of China (PBOC), the central bank said the crackdown on ICOs has been effective and basically controlled the risk at an early stage.

It’s been a year since the central bank and six other regulatory agencies declared ICOs a form of illegal fundraising and shut down local crypto platforms that facilitated such offerings.

China’s share of global crypto transactions has dropped from the initial 90% to less than 5%, the PBOC said in its Tuesday notice. As a result, China has “effectively” avoided the “virtual currency bubble caused by skyrocketing global virtual currency prices in the second half of last year.”

While this has shielded China’s financial markets from being affected, the central bank has since found some emerging risks in virtual currency trading both domestically and abroad. A person close to regulators told Caixin that authorities are considering expanding the crackdown on information related to crypto trading on the internet.

Following the ICO ban, major virtual currency exchanges based in China moved overseas, mostly to Singapore, Japan and Hong Kong, but continued to serve domestic investors, according to the central bank.

Some companies also continue to operate on the mainland by acting as market-makers and guarantors in over-the-counter trading, which was not explicitly banned.

Last month, the central bank, the China Banking and Insurance Regulatory Commission, the Ministry of Public Security and two other agencies warned against variations on ICOs disguised under various alternative names such as IFO, IEO and IMO.

The regulators have been taking steps to close the loopholes. Last month, a multi-agency task force on internet finance blocked the IP addresses of 124 crypto exchange platforms with servers located abroad but substantially targeting Chinese residents.

The PBOC said Tuesday that it would continue to monitor the offshore servers of these 124 platforms.

As part of the regulatory crackdown, Chinese social media platforms, including Tencent, developer of China’s most popular social media app WeChat, have all tightened their monitoring of crypto-related activities on their platforms.

The public WeChat accounts of some of the most influential crypto information providers — such as Huobi News, Huobi Research and TokenClub — were blocked for violating regulations, Tencent said.

Major Chinese online payment providers are also responding to the tightening regulations. Alipay, the biggest payment service in China, has officially prohibited traders from using Alipay accounts to initiate digital asset trades. Alipay has reportedly disabled some 3,000 accounts involved with crypto trading.