China's Central Bank to Crack Down on Crypto Firms Conducting Airdrops

Omar Faridi
  • China's central bank, the PBoC, suspects that many crypto firms located abroad are targeting the country's residents with airdrops, or giveaways.
  • After airdropping tokens to Chinese residents, these firms are reportedly trying to profit by selling their supply of tokens via pump-and-dump schemes in secondary markets.  

China’s central bank, the People’s Bank of China (PBoC), is reportedly planning to conduct an investigation focused on crypto firms that are distributing free tokens to users via airdrops.

The PBoC noted in its most recent financial stability report that airdrops are basically “disguised” initial coin offerings (ICOs), and there are now an increasing number of them being offered to people throughout China.

Last year, Chinese regulators had clamped down on ICOs as many of them were scams targeting unsuspecting investors. Now, the PBoC is concerned that crypto-related companies airdropping tokens, or doing “giveaways”, may also be carrying out fraudulent schemes.

The PBoC’s financial report for 2018 (published on November 2nd) revealed that some local crypto businesses had shifted their operations to locations abroad. These business owners have also hired agents who are reportedly making investments in various crypto projects on behalf of China’s residents.

Trying To Exploit Secondary Markets

According to PBoC’s report, there are several blockchain and crypto related projects that are airdropping free tokens to users while holding onto a large portion of the total supply. The companies launching these questionable projects have also been trying to orchestrate pump-and-dump schemes in secondary markets - in order to make quick profits.

Notably, Chinese authorities have found there were 65 ICOs launched and completed in the country up until July of 2017. Only five such crowdfunding campaigns had been completed in 2016 or earlier, the PBoC stated in its report.

Moreover, the PBoC found that over 105,000 Chinese residents had been involved in these ICOs - which generated approximately 2.6 billion yuan (appr. $375.4 million) in funding for blockchain startups.

Significantly, the funds raised from ICOs launched in China during 2017 accounted for over 20 percent of the total amount received by crypto firms globally in the same time period.

Closely Monitoring Crypto-Related Activities

Commenting on the increasing number of airdrops and other potentially fraudulent activities in the crypto space, the PBoC said it would be carefully monitoring local markets while also working with other agencies to help ensure consumer protection.

China’s regulatory authorities had moved toward banning ICOs in September of 2017, and in June 2018, the PBoC’s vice governor had warned the nation’s citizens about “disguised” ICOs. The governor had also confirmed that digital currency trading in China was prohibited.

In August, the China National Internet Finance Association (NIFA), a self-regulatory body established by the country’s reserve bank, started including a "token sales" category on its website. The NIFA also asked local residents to report any crypto-related activity that they think might be a scam.