Weihai, a port city in Shandong province of eastern China, has a stern warning for investors: make sure you are really investing in blockchain innovation and not cryptocurrency masquerading as blockchain.
The Weihai Local Financial Supervision and Administration said Friday investors should be more cautious because illegal crypto issuance and trading are on the rise, according to a statement from the authority.
Crypto trading and ICOs have been illegal in China since 2017 but blockchain has been encouraged by the Chinese President Xi Jinpin. However, the government claims more companies, most masquerading as blockchain startups, have launched crypto exchanges and raised money through centralized token sales.
“As the country is promoting blockchain technologies, people start to hype virtual currencies again and some of the related illegal operations have come back to life,” the Weihai authority said in the statement.
Other local authorities, including the police department and the Weihai branch of the central bank and China Banking and Insurance Regulatory Commission, have endorsed the statement and plan to carry out an inspection of illegal ICOs and crypto exchanges.
“Some companies set up servers outside China and promote their products among Chinese investors on social media,” the authority said in the statement. “They usually process transactions via online payment applications, therefore many of these funds are hard to retrieve as they floating abroad.”
According to the statement, some crypto exchanges use celebrity endorsements and popular yet complex technological concepts to lure investors, while making profits by manipulating crypto prices and cash withdrawal limits.
Other illegal operations to attract investments include Ponzi schemes and promising high value appreciation in crypto with false information, according to the statement.