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China’s ban of ICOs unlikely to effect long-term bitcoin sales says Luno founder

China’s ban earlier this month of initial coin offerings (ICOs) is unlikely to affect bitcoin sales in the long term — while the volatility may in fact benefit bitcoin platforms, says the founder of Luno bitcoin platform Marcus Swanepoel.

Speaking to Ventureburn yesterday following his startup’s announcement of a R120-million funding round, Swanepoel pointed out that ICOs and cryptocurrency itself are two different things and that the ban is likely not effect Bitcoin sales.

Read more: SA bitcoin platform Luno closes R120m round led by Balderton Capital

“I don’t think there will be any fallout from it,” said the founder of the four-year old South African platform that allows users to sell and buy bitcoin.

He however cautioned investors that participate in ICOs, adding that the money practice and know your customer (KYC) practices of Chinese platforms are “very dubious”.

I don’t think there will be any fallout from China’s ban on ICOs says Luno founder

“While there are some (ICOs) that are interesting, people must view them with scepticism, because there’s alot of misunderstanding and fraud,” he added.

Going down, going up: Price of Bitcoin. Source: World Coin Index

Going down, going up: Price of Bitcoin. Source: World Coin Index

‘Don’t speculate’

While the price of Bitcoin has fell to $3226 on last Thursday (14 September), from a high of $4950 on 1 September, the price had climbed back up to $4067 by yesterday (18 September) (see the graph from World Coin Index, above).

In response to the price volatility Swanepoel cautioned investors not to speculate on the price of Bitcoin, adding that over a five to seven-year period there has been a steady rise in the coin’s price.

“This is a new market and the market is trying to find the right price equilibrium,” he added.

However he conceded that platforms like his are in fact benefiting from the volatility in the Bitcoin market — through the increased number of trades and the growing media interest the falling price has brought about.

‘JP Morgan CEO doesn’t understand Bitcoin’

And while JP Morgan CEO Jamie Dimon last week called Bitcoin “a fraud”, Swanepoel said he isn’t sure if Dimon quite understands the currrency.

“We’re not building this product for Jamie Dimon, but his daughter,” he said, referring to the fact that Dimon had told shareholders that his daughter had purchased Bitcoin and thought that she was “a genius” after a dramatic rise in the price of the token.

Yet he conceded that were he in Dimon’s shoes he would “say the same thing” to shareholders as Bitcoin has the potential to be “quite disruptive” to the bank.

None the less, he pointed out that the number of bitcoin tokens used to perpetrate fraud is “exceedingly rare” and smaller in number and monetary size than the value of fraud carried out using the US dollar.

“For some reason the bar for Bitcoin companies must be zero, and that for US dollar should be (higher),” he said.

Over the past few years the startup has held a number of engagements with South Africa’s Reserve Bank. While Swanepoel said though he “can’t disclose details”, he was able to say that regulators are “very smart” and are considering innovation in a “pragmatic way”.

When pressed he said the Reserve Bank should consider putting in place a regulatory sandbox, as is the practice by regulators in a number of other jurisdictions.

However he pointed out that sandboxes are not always “perfect” because they require various regulators in a jurisdiction to work closely together. Often a startup trials a product but regulators then halt it, leading entrepreneurs to then consider the sandbox “a waste of time”.

Featured image: Tiendientu vietnam via Flickr (CC2.0 BY-SA, resized)