Shanghai Central Bank Declares All Token Offerings Illegal as China Draws Hard Line on Crypto Regulation

The Legislative Move

On November 22, 2019, the Shanghai branch of the People’s Bank of China (PBOC) issued a forceful statement that sent immediate shockwaves through the cryptocurrency market. The declaration left no room for interpretation: all forms of token-based fundraising are unauthorized and illegal under Chinese law. The Shanghai PBOC explicitly named ICOs (Initial Coin Offerings), IFOs (Initial Fork Offerings), IEOs (Initial Exchange Offerings), and STOs (Security Token Offerings) as unlawful public offerings and securities issuances. The statement was not merely a reiteration of existing policy. It represented a pointed escalation in regulatory language, designed to eliminate any ambiguity that crypto entrepreneurs had exploited since the original 2017 ban on token sales and domestic exchanges.

The timing was deliberate. Just weeks earlier, President Xi Jinping’s October 26 endorsement of blockchain technology had triggered a powerful rally across cryptocurrency markets, with some China-based projects surging dramatically on the news. Chinese officials had consistently drawn a sharp distinction between blockchain technology and the cryptocurrencies built on top of it, but many market participants chose to interpret Xi’s remarks as a broader signal of acceptance. The Shanghai PBOC’s November statement was designed to crush that narrative once and for all.

Jurisdiction Context

The Shanghai announcement did not occur in isolation. On the same day, the Shenzhen local government and its central bank branch issued a parallel statement, revealing that authorities had identified 39 cryptocurrency exchanges that were actively circumventing the 2017 ban on domestic trading platforms. These exchanges, many operating from offshore jurisdictions, continued to offer services to Chinese residents through VPNs and alternative access methods. The coordinated announcements from China’s two most important financial centers signaled a nationwide enforcement strategy rather than isolated regional action.

China’s regulatory posture toward cryptocurrency has evolved through several distinct phases since 2013, when the government first restricted financial institutions from handling Bitcoin transactions. The 2017 blanket ban on ICOs and domestic exchanges drove much of the country’s crypto trading activity underground or offshore. By late 2019, the government was simultaneously developing its own central bank digital currency (CBDC), later known as the digital yuan, while tightening the screws on any decentralized alternative. The PBOC’s Digital Currency Research Institute had been actively testing prototype systems, making the crackdown on private cryptocurrencies both a regulatory priority and a competitive strategy.

Industry Reaction

The market response was swift and brutal. Within two hours of the PBOC publishing its statement at approximately 5 PM Beijing time, Bitcoin’s price plummeted roughly 10 percent, touching a low of around $6,800. The cryptocurrency had been trading near $7,400 before the announcement. By November 23, Bitcoin had partially recovered to approximately $7,397, but the damage to market sentiment was already done. The broader cryptocurrency market slid by up to 11 percent across major altcoins, with Ethereum dropping to $153 and XRP falling to $0.236.

The sell-off effectively erased all gains that had been generated by Xi Jinping’s October blockchain endorsement, concluding what analysts described as a complete China-driven market cycle. Trading volume across major exchanges remained depressed, with Blockchain.com data showing that seven-day average exchange volume had recently set new lows even before the crackdown announcement. The combination of low volume and negative regulatory news created a particularly hostile environment for crypto traders.

Compliance Hurdles

The PBOC’s statement created significant compliance challenges that extended well beyond China’s borders. By declaring that it would regulate trading platforms located outside the country that were offering services to Chinese residents, the central bank asserted extraterritorial regulatory authority. This put international exchanges in a difficult position: continue serving Chinese users and risk enforcement action, or voluntarily restrict access and sacrifice a significant user base. Several exchanges had already begun implementing geo-blocking measures for Chinese IP addresses following the 2017 ban, but enforcement had been inconsistent.

The classification of IEOs as illegal was particularly noteworthy, as it addressed a fundraising mechanism that had gained significant popularity in 2019. Exchange-backed token launches had become a primary vehicle for new projects to raise capital, with major platforms like Binance Launchpad driving billions in token sales. By explicitly naming IEOs alongside ICOs, the Shanghai PBOC closed a loophole that token issuers had been exploiting since the original 2017 restrictions. STOs were also swept into the prohibited category, eliminating any hope that regulated security token frameworks might find acceptance in China.

What’s Next

The coordinated Shanghai-Shenzhen crackdown pointed to a difficult road ahead for cryptocurrency businesses with any connection to the Chinese market. With the PBOC actively developing its digital yuan and the government maintaining a firm grip on capital controls, decentralized cryptocurrencies faced an increasingly hostile regulatory environment in the world’s second-largest economy. For the global crypto industry, the episode reinforced a pattern that would only intensify in subsequent years: China’s blockchain ambitions and its cryptocurrency restrictions are two sides of the same policy coin. The government intends to harness distributed ledger technology on its own terms, through centrally controlled systems, while systematically eliminating any alternative that operates outside its oversight. Bitcoin’s partial price recovery to $7,397 by November 23 suggested that markets had quickly priced in the news, but the longer-term implications for crypto adoption in China were far more consequential than any single day’s price action.

Disclaimer: This article is for informational purposes only and does not constitute financial or legal advice. The regulatory landscape discussed herein reflects conditions as of November 2019 and may have changed significantly since then. Always consult qualified professionals before making investment decisions.