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GoCardless, a fintech that makes recurring payments easy for subscription businesses, raises $22.5M

GoCardless, a fintech that makes recurring payments easy for subscription businesses, raises $22.5M


Well, GoCardless co-founder and CEO Hiroki Takeuchi knows how to work a non-denial denial. When I interviewed him a few weeks ago for an extensive profile piece we ran yesterday, he wouldn’t be drawn on if the hot London fintech was raising a new round. Today — and a little earlier than was planned, thanks to an embargo broken by a London regional paper a week early! — the company is announcing new funding.

Once again, Accel, Balderton Capital, Notion, and Passion are backing GoCardless, this time to the tune of $22.5 million and on the back of what the startup says is record annual growth in the U.K. and strong, early traction in new markets. Outside of Blighty, the company operates its bank-to-bank payments network in the Eurozone and Sweden.

Founded in 2011, GoCardless originally went through Silicon Valley’s Y Combinator accelerator but has come a long way since those humble days and after a very early pivot away from group payments. As it exists today, the fintech startup increasingly targets companies that need to offer their increasingly international customers the ability to pay by a recurring bank-to-bank transfer, referred to in the U.K. as a Direct Debit.

This, of course, includes various subscriptions and SaaS platforms — an area that has exploded with the internet and things like subscription e-commerce and cloud software. Unlike card payments, bank-to-bank transfers don’t expire. Thus, the GoCardless mission is to help businesses take and settle recurring payments from anywhere, to anywhere, in any currency.
The new funding is designed to enable the startup to make further headway in this regard, eyeing up support for more countries, with Australia and Denmark coming soon, and more to follow.

In a statement, Takeuchi explains: “As more and more businesses become international, they face endless frustrations in managing payments across multiple territories. What we have engineered is a way to simply plug recurring payments into their existing systems, across the world, so they can focus on the challenges that really matter.”

Meanwhile, GoCardless isn’t disclosing revenue. Instead the company says it processes over $4bn worth of transactions across more than 30,000 organisations in the U.K. and Europe, working with small startups and large enterprises across a number of industries. It offers an API and off the shelf integrations with over 100 partners including Xero, Sage and Zuora. Customers include Sage, Thomas Cook, Box and The Guardian.

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China’s three largest bitcoin exchanges will all stop offering local trading

China’s three largest bitcoin exchanges will all stop offering local trading


Well, that didn’t take long. Yesterday, China’s longest running bitcoin exchange, BTC China, announced it will suspend its local trading service at the end of this month, and today the country’s two other major exchanges — Huobi and OKCoin — followed suit to say they will cease at the end of October.

The writing was on the wall when The Wall Street Journal reported on Monday that the Chinese government intended to shut down bitcoin exchanges after banning ICOs the previous week. Government officials then began meeting with exchanges this week to bring about the trading suspensions, a source with knowledge of discussions told TechCrunch.

While the exchanges will no longer be allowed to facilitate the buying of crypto coins using Chinese Yuan and the trading of coins, they will continue to operate international-facing exchanges and other associated services. Smaller exchanges, however, will be closing for good. Those include Yunbi, which announced in Chinese it will shut up shop on September 20.

The impact of the crackdown sent bitcoin prices falling — with the crypto currency dropping below $3,000 on some exchanges for the first time in a month — but it quickly rebounded and, at the time of writing, it had nearly made up the losses.

As with all things bitcoin, it is difficult to be sure exactly why, but there are plenty of reasons.

Most importantly, China is no longer the dominant in bitcoin trader it once was. A series of government bans — most recently a four-month trading freeze due to security concerns — have seen its share of global trading drop from more than 90 percent in previous years to just over 10 percent today. Markets like Japan, Korea and the U.S. have emerged to account for the lion’s share of global trading volumes, so the impact of this China ban is not as severe as it initially may seem.

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SEC shows support for ICO’s that are not obviously securities

SEC shows support for ICO’s that are not obviously securities


The SEC appears to have taken very thoughtful action on two crypto projects to date.  Nay-sayers are predicting the end, while proponents of crypto dismiss the actions.

Here’s a quick analysis of what is actually happening.  The two recent steps by the SEC were:

  1. The SEC actually issued a letter on one project – the ill-fated DAO.  This was a project that allowed investors in the token to pool their funds and invest in other crypto companies (including C Corps that were in the crypto space).  This was a clear sale of securities under almost anyone’s definition as the investors were to receive ownership in a variety of crypto startups.
  2. The SEC recently contacted Protostarr and as a result of the verbal inquiry, Protostarr decided to “shut down and return all funds”.  What was Protostarr doing?  They were securitizing the income stream of youtubers and twitch casrters, by letting investors get a percentage of the future revenues of those stars.

In both cases, even a non-lawyer can see that both were clearly securitization and under the SEC’s jurisdiction, as there were underlying assets in both cases.  The DAO securitized equity, Protostarr securitized a future revenue stream much like a royalty on an artist.

My take away is pretty clear:

  • Protocol level tokens (Bitcoin, Ethereum, etc) do not have any assets of any kind underlying them and remain far from the SEC’s current focus
  • Apps that give you a credit for future usage (Filecoin, Civic, Gnosis, etc) are in my opinion still effectively pre-paid gift cards like an Amazon gift card, and are not covered by the SEC.  I have no proof of this but the analogy is amazingly sound<
  • Apps that “sell future income streams” now have two examples of SEC scrutiny and I would expect more.

The takeaway: securitization of assets like LAToken (assets like art and real estate), Onegram (gold) and others will continue to receive SEC scrutiny and these sorts of innovations will move off shore (LAToken is offshore).  This is entirely appropriate given the SEC’s purview over sale of derivatives.

What happens to the rest of the ICO market?  It’s not clear yet, but the SEC is clearly focused on the “low hanging fruit” by going after examples where they can obviously win and have a great case against a weak opponent.

The DAO for example was already closed when the SEC issued their letter.  And for Protostarr, both securities lawyers I know (J. Dax Hansen at Perkins Coie and Marco Santori at Cooley) would have told the Protostarr team that their idea was terrible in the first 5 minutes of an introductory call… just like they did when I first talked to them.

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The first of China’s top bitcoin exchanges has announced it will suspend trading

The first of China’s top bitcoin exchanges has announced it will suspend trading


A number of China’s top bitcoin exchanges are preparing to suspend their services following instructions from the government. BTC China, one of the country’s top three, became the first to officially make the move after it announced today that will stop all trading for China-based customers from September 30.

The company said other services, including its BTCC Pool for miners, are not impacted and will continue to run. There’s no word on when, or indeed whether, it will reintroduce trading.

The Wall Street Journal reported on Monday that the Chinese government and the country’s central bank intended to shut down bitcoin exchanges. That report followed an official on ICOs which was announced last week.

Those developments come before the next major meeting of China’s communist party, and they have put the China crypto rumor mill to full speed.

While there is lots of speculation, TechCrunch has confirmed with two sources with knowledge of developments that government officials have visited a number of top exchanges to instruct that they cease trading services on Chinese soil soon. At this point we understand that the government hasn’t given a hard deadline for when that should be, nor has it indicated whether it will allow services to resume in the future.

China banned bitcoin trading for major institutions in December 2013, and a four-month freeze was imposed on trading this year due to security concerns. The space has come under increased scrutiny in 2017 following a boom in raising money via ICOs, which has already passed $1.7 billion this year, and soaring valuations for bitcoin and Ethereum. The former surged past $4,500 per coin this summer, and it even surpassed $5,000 on some exchanges.

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North Korea’s hackers are reportedly targeting bitcoin exchanges

North Korea’s hackers are reportedly targeting bitcoin exchanges


North Korea’s hackers have been linked with many attacks, including the 2014 Sony hack, but it looks like the totalitarian state is now targeting bitcoin, and crypto coin exchanges in particular, with its hacking teams.

That’s according to a new report from cybersecurity firm FireEye, which claims to have tracked at least five attacks on bitcoin exchanges, or individual bitcoin wallets, within the past six months. The targets reportedly include South Korea-based exchange Yapizon, and two others that were not named.

Korea’s top crypto exchange Bithumb, the world’s fourth largest exchange, was hacked in late June, while the country’s top Ethereum exchange is said to have lost over $1 million via a breach earlier this month, but it is unclear whether North Korea was involved in either heist.

The rise of bitcoin, which has surged to record highs this year and touched $5,000 per coin on some exchanges this month, and Ethereum, which has gone from $8 per coin in January to around $300 today, has made exchanges and other places were coins are stored hugely attractive targets for hackers. If figures, then, that North Korea — which already draws revenue from illicit businesses — is interested.

“It should be no surprise that cryptocurrencies, as an emerging asset class, are becoming a target of interest by a regime that operates in many ways like a criminal enterprise. While at present North Korea is somewhat distinctive in both their willingness to engage in financial crime and their possession of cyber espionage capabilities, the uniqueness of this combination will likely not last long-term as rising cyber powers may see similar potential,” FireEye concluded.

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Bankers’ mistrust of bitcoin is still the greatest argument for it

Bankers’ mistrust of bitcoin is still the greatest argument for it


Earlier on Tuesday, at different conferences around New York, JPMorgan Chase chief executive Jamie Dimon took aim at bitcoin, calling the cryptocurrency “a fraud” and “worse than tulip bulbs.”

This skepticism by one of Wall Street’s titans, and its reflection in many offices and hallways in top financial services companies, is perhaps one of the strongest cases for bitcoin’s lasting importance.

Let’s be clear, Dimon’s firm is one of the chief architects of the global financial crisis that led to the interest in a somewhat arcane cryptocurrency in the first place. There would be no bitcoin without Jamie Dimon — and in some ways he’s right to fear its rise.

As a Vanity Fair piece revealed last week, JPMorgan Chase paid out $13 billion (with a “b”) to the U.S. government because of its role in the financial crisis and the mortgage security fiasco that almost destroyed the U.S. economy.

The story quotes an unfiled complaint that was sealed as part of the settlement with the Department of Justice.

“By this action,” the draft complaint begins, “the United States seeks to recover civil penalties” against JPMorgan Chase and its investment banking arm “for a fraudulent and deceptive scheme to package and sell residential mortgage-backed securities” that the bank “knew contained a material amount of materially defective loans.” As the unfiled complaint continued, “JPMorgan knowingly securitized and sold billions of dollars of mortgage loans that were originated in material violation of underwriting guidelines and law.” (When reached for comments and responses to the various allegations in Wagner’s unfiled brief, a spokesperson for JPMorgan Chase told me, “These allegations have been addressed, resolved, or refuted years ago.”)

Whatever irrational exuberance may be attributed to bitcoin’s current froth, it’s hardly a fraud. What it does is get rid of the need for potentially unscrupulous middlemen who thrive and profit on asymmetric information.

Bitcoin does away with this by presenting an immutable ledger. The value of things are recorded, agreed upon, and irrefutable. Which means that shenanigans of the kind that brought down the housing bubble are less likely to occur.

Perhaps bitcoin itself is overvalued, but it’s not the house of cards that Dimon’s employees blew over in 2008.

While the near sacramental disputes in the cryptocurrency community over bitcoin and bitcoin cash or ethereum vs. ethereum classic do the entire industry no favors, they’re the arguments of individuals who want to untether financial services from the chicanery of misanthropic sociopaths who thrive on their ability to cheat systems.

The favorite refrain of Wall St. may be “it’s only illegal if I get caught”… and while cryptocurrencies are unregulated, they are — for the most part — transparent.

Again, the Vanity Fair report is illustrative.

At Dimon’s “insistence,” the unfiled complaint asserts, “JPMorgan formulated an exit strategy to divest itself” of the riskiest pieces of mortgage-backed securities that had been accumulating on its balance sheet. But, Wagner writes in the draft complaint, “despite knowledge at the highest levels that underwriting had deteriorated across the industry and early payment defaults were spiking, JPMorgan continued to purchase and securitize subprime loans without addressing the known breakdown of its due diligence practices and without disclosing its knowledge to investors.” This is pretty much the exact same thing that Goldman Sachs did leading up to the financial crisis, a practice for which the bank was roundly criticized.

Dimon may say that he’s not advising anyone to ‘go short’ on bitcoin, but if Wall Street keeps up its criticism, my advice may be to go long.

Featured Image: Bryce Durbin

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China’s ICO ban makes more sense in light of its history with fintech

China’s ICO ban makes more sense in light of its history with fintech

China’s decision to freeze fundraising through initial coin offerings continues to roil markets, but the regulatory decision may not be as controversial as the response from the bitcoin community would lead observers to believe.

On Monday, the People’s Bank of China announced that it was implementing a freeze on fundraising through ICO’s on Chinese exchanges. (Here is the original announcement, for Mandarin speakers.) The move by China’s central bank, which is roughly equivalent to the Fed in the US, looks at first blush to be a blunt response to a nuanced issue.

Many in the US have chided the PBOC for its apparent overreaction. AngelList co-founder Naval Ravikant called the policy a “huge gift to Silicon Valley and its resident financiers.” VC Fred Wilson penned a thoughtful post comparing China’s approach to that of the SEC in the US, opining that “We needed a cooling off period and if China’s actions are that cooling off period, then I welcome them. However, a blanket ban on ICOs seems like bad policy to me.”

The news is ultimately, like all things blockchain, speculative. ICO trading has been frozen on exchanges, and exchanges are complying with government demands to offer refunds. The PBOC is mulling freezing bank accounts tied to ICOs. Local regulators have a list of 60 major platforms they plan to inspect. And, in a partial walk-back, “a Chinese official has clarified the position saying that China will look to resume ICOs in the future after establishing licensing regulations.”

So the net status of the ban is:

  1. No one is sure exactly what it means or how it will be applied;

  2. Platforms and investors look generally eager to comply, even in spite of the short-term operational pain; and,

  3. It may be a temporary stopgap measure while the government decides how to regulate cryptocurrencies.

This status creates a lot of uncertainty, but with a government known both for far-reaching measures and for keeping its cards close, that may be by design.

From the perspective of US and European financial markets, this reaction seems like a drastic one-size-fits-all policy for a nuanced ecosystem, calling to mind the idiom “if all you have is a hammer, everything looks like a nail.” However, China’s context provides four specific insights that somewhat reframe this policy:

An ever-evolving financial regulatory regime

In the period following Chairman Mao Zedong’s death leading up to 1989 (when communism began to reform throughout Europe), China went through some of the most important regulatory reforms of the past century. The country implemented its Open Door Policy in 1979, allowing China up to foreign businesses.

China’s private sector grew massively alongside east Asia’s “tiger economies” in the 1990’s, with further reforms in 1998 bolstering private property rights, shutting down government monopolies, and stimulating competition in the global private sector. In perhaps the most important development in its public markets reform, the government greenlit the Shanghai Stock Exchange, which opened up in 1990.

During this growth phase, millions were pulled out of rural poverty, and GDP per capita grew by almost 20x (better than just about any VC multiple.) This astounding rise in the wealth and purchasing power of Chinese citizens created a de novo middle class of investors almost overnight. This middle class, reminiscent of America’s in the roaring 20’s and postwar 50’s, is a ravenous source of global consumption and investment in financial products such as stocks, bonds, alternative finance, and, yes, bitcoin.

But the question of how to regulate speculation and protect middle class investors has not been an easy one to answer for China. As Brookings notes, China’s financial system is “highly opaque and evolving rapidly. Every decade sees major changes in the regulation, structure, and operation of finance in China, consistent with the rapid changes in the nation’s overall economic and political development. Only a few decades ago the private financial sector virtually did not exist.”

The dual goals of any securities regulatory regime are to 1) protect investors (especially unsophisticated, mom-and-pop investors) and 2) avoid deterring innovation. Sometimes these goals are harmonious, but frequently they conflict.

In a country with a stock market less than 30 years old, it’s little wonder that investor protections may not yet have evolved to be comprehensive enough for the complicated ecosystem of alternative finance. Imagine China having to replicate the regulatory framework that took decades to develop in the US following the 1929 stock market crash – all in less than 30 years!

This kind of uncertain environment is perfect for scammers, or what Matt Levine calls “hucksters and hype and bubbles and disaster.” Without organizations like the SEC, CFPB, and FINRA to protect massive nest egg of the Chinese middle class, blanket bans like the PBOC’s on ICOs look somewhat more reasonable as a stop-gap measure to avoid massive fraud and loss.

A sketchy recent past for financial technology in the Middle Kingdom

The fledgling financial regulatory regime in China, married with the growth of fintech over the last 7 years, has created a perfect environment for booms and busts, frauds and scams, and losses for unsophisticated investors.

China’s stock market is dominated by individual investors, who make up close to 85% of traders. Compared to the plurality of ETF’s, hedge funds, and institutional investors the US, the traders on the Shanghai are remarkably new to investment.



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UK regulator says ICO investors should be ‘prepared to lose your entire stake’

UK regulator says ICO investors should be ‘prepared to lose your entire stake’


The UK’s markets regulator has added its voice to warning calls from across the world around the dangers of ICO investing.

ICOs, also known as token sales, have brought in an estimated $1.7 billion in crypto token investment for companies this year, but the boom has raised concern among financial regulators for the potential for scams, money laundering and other illicit activities.

“ICOs are very high-risk, speculative investment,” the Financial Conduct Authority (FCA) — which oversees 56,000 financial services firms and markets in the UK — said in a statement published today. (Hat tip Business Insider.)

“You should be conscious of the risks involved and fully research the specific project if you are thinking about buying digital tokens. You should only invest in an ICO project if you are an experienced investor, confident in the quality of the ICO project itself and prepared to lose your entire stake,” it added.

China issued a ban on ICOs last week, while the SEC in the U.S. said some token sales may violate securities laws. Regulators in Korea, Singapore, and Hong Kong are among those to have warned on potential securities violations, and more widely told citizens that they risk losing their investment if they get involved in token sales.

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The promise of managing identity on the blockchain

The promise of managing identity on the blockchain


Blockchain, the secure distributed ledger technology first created to track bitcoin ownership, has taken on a number of new roles in recent years tracking anything of value from diamonds to real estate deeds to contracts. The blockchain offers the promise of a trusted record that can reduce fraud. Some industry experts say that over the coming years, it could be used to control identity information in a more secure fashion.

As we have seen, just last week with the massive Equifax hack, our personal information is highly vulnerable in online databases in their current form. The fact is that whenever we have to identify ourselves, we are forced to present a variety of information to prove we are who we say we are, whether that’s to register for an online service, to cross a border or even prove you are old enough to drink at a bar.

The argument goes that if our identity were on the blockchain, it would give us more control over this information, and with proper applications allow us to present just the minimum amount of information a given party needs to identify us. That could be your date of birth at a bar, your credit score at a bank or a unique identifier to access an online service.

It’s unclear if the blockchain can be that identity panacea that some have suggested, but there are a range of opinions on the matter.

Yes, it’s happening

Of the experts we contacted, only one was fully enthusiastic about blockchain as an identity tool. Jerry Cuomo, IBM Fellow and VP of blockchain technologies, sees blockchain already having a big impact as people demand more control of their identities. He says that we are constantly being asked to share personal information to access places or information or to do business with companies — and that each of these actions puts us at risk for identity theft. He believes the solution to this problem could lie on the blockchain.

“Imagine a world where you are in direct control of your personal information; a world where you can limit and control how much information you share while retaining the ability to transact in the world. This is self-sovereign identity, and it is already here. Blockchain is the underlying technology paving the path to self-sovereign identity through decentralized networks. It ensures privacy and trust, where transactions are secure, authenticated and verifiable and endorsed by relevant, permissioned participants,” Cuomo explained. In fact , he says that he’s already seeing businesses and governments beginning to establish and use these networks to meet citizen demand and deliver the promise of self-sovereign identity.

No, probably not

It sounds pretty good to hear Cuomo describe it, yet not everyone is enthusiastic as he is, seeing many obstacles to using the blockchain for identity purposes. Steve Wilson, an analyst at Constellation Research, who has studied the blockchain extensively has serious reservations about it as an identity management system.

“Identity is not going to move to the blockchain in any big way (not as we know it). Blockchains were designed to solve problems quite different from identity management (IDM). We need to remember that the classic blockchain is an elaborate system that allows total strangers to nevertheless exchange real value reliably. It works without identity and without trust. So it’s simply illogical to think such a mechanism could have anything to offer identity,” Wilson explained.

He adds, “The public blockchains deliberately and proudly shirk third parties, but in most cases, your identity is nothing without a third party who vouches for you in some way. Blockchain is great for some things, but it’s not magic, and it just wasn’t designed for the IDM problem space.”

Eve Maler, who works at identity management firm ForgeRock, which landed an $88 million investment last week, also finds the possibility highly unlikely for a variety of practical reasons. “Identity will not move to the blockchain if this means personal data will be put on a public permissionless blockchain (distributed ledger technology in its purest form), as this is now widely considered bad practice,” she said.

She added, “The “distributed nodes” element of the technology is valuable for architectures where trust in a central authority is difficult or undesirable to establish, but can be challenging where it is desirable to record sensitive information because of the increased attack surface (every node has a copy of everything) and resulting increased privacy considerations.”

It depends

Then there are those who fall somewhere in the middle. They aren’t ready to write it off, but they see a lot of obstacles along the way to implementing it, or see it as a part of a broader ecosystem of identity tools, rather than a full replacement to what we have now.

Charles Race, president of worldwide field operations at cloud identity firm Okta, which went public this year, thinks it’s possible blockchain will emerge. He envisions a similar set of use cases as Cuomo, but sees a lot of obstacles that stand in the way of using the blockchain to implement identity management broadly moving forward.

“A trusted entity will need to establish some legal and enforceable rules and policies for how it all works, they’ll need to make it easy for the average person to use securely, and they’ll need to convince a critical mass of people and service providers to adopt and trust the ID — all while finding an economically viable business model. Some institutions are uniquely positioned to solve all of these chicken-and-egg issues at once and bring this big idea to life — first among them are our citizen-facing government agencies,” Race explained. But he adds, “The trouble with this idea is that a universal ID poses risks to privacy and hence [could] encounter significant political opposition.”

Andre Durand, CEO at Ping Identity, an identity management firm that was sold for a reported $600 million to Vista Equity Partners last year, says it’s not likely to happen as a full replacement over the next five years, but it could begin to play a role in identity. “What is much more likely is that the things Distributed Ledger Technology is uniquely designed for, keeping accurate records in a distributed system, will become part of the identity management ecosystem and help improve aspects of it,” he says.

Ian Glazer, an identity industry expert says it really about choosing the right tool for the job, but he doesn’t necessarily see there ever being one answer that fits every identity scenario including blockchain.

“To ask if identity will move to blockchain is not the right question. Better to ask will use cases emerge that blockchain-related technologies are uniquely qualified to solve. Likely there will be some. But just like relational databases, LDAP and object databases, no one storage/retrieval mechanism has proven to be the single “right” tool for the job,” Glazer told TechCrunch.

Like any emerging technology, there are going to be a range of opinions on its viability. Using the blockchain as an identity management system is no different. It will probably begin to take on some role over the next five years because the promise is just so great, but how extensive that will be depends on how the industry solves some of the outstanding issues.

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Bitcoin price drops following report that China is going to shut down local exchanges

Bitcoin price drops following report that China is going to shut down local exchanges


Another day, another crash and another Chinese ban. This time, as Reuters spotted, a single report from financial news site Caixin is saying that the Chinese government is considering banning cryptocurrency exchanges in China.

In particular, the report is saying that Chinese citizens won’t be able to use exchanges to buy bitcoins, ethers and more using Chinese yuan, and vice versa.

Cryptocurrencies aren’t banned per se, just exchanges. But do bitcoins have value in China if you can’t exchange them? That’s the main question and the reason why cryptocurrencies are crashing.

This is what it looks like on coinmarketcap.com right now:

Bitcoin is currently down 7.7 percent, Ethereum is down 11 percent, Bitcoin Cash (which is quite popular in China) is down 11.2 percent, etc. But if you go on Chinese exchanges, the crash is even more important. For instance, Bitcoin is down 13.4 percent and Ethereum is down 18.4 percent on OKCoin.

As always, it’s a bit hard to know for sure what’s going to happen. There’s only a single report about this decision. Chinese investors could be trying to exit cryptocurrency markets as quickly as possible because they risk being locked into cryptocurrencies.

Those exchanges have already been regulated with KYC (know your customer) rules and anti-money laundering rules. Margin trading is also forbidden in China.

Maybe the Chinese government wants even more control and is going to create a centralized exchange and regulate those markets as much as possible. It’s hard to know for sure as Chinese regulation is always very sudden.

Earlier this week, the Chinese government banned ICOs in China. There’s currently an ICO freeze and the top 60 ICO platforms are being investigated. Authorities thought ICO tokens were like securities, and some of them were scam.

This isn’t the first time China is banning exchanges. Back in 2013, bitcoin dropped more than 50 percent as the government asked BTCChina to stop accepting deposits in Chinese yuan. The government changed its mind later on.

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