Earlier today, Facebook announced that it will be blocking any advertising promoting cryptocurrency products and services. According to the social media behemoth, it was open to emerging technologies but many companies were not acting in “good faith” when extolling the virtues buying into virtual currencies.
Several hours after the news was released, there was a huge decline in the cryptocurrency markets as the total market capitalization of all cryptos shed over 15% of its value in 24 hours to hit a low of $485 million. Bitcoin, the leading cryptocurrency, fell past its key support level of $10,000 to reach $9,777 – the second time that it has dipped below $10,000 this month.
Why The Ban?
Rob Leathern, Facebook’s product management director, said the ads were a problem for users because they are “frequently associated with misleading or deceptive promotional practices.” He also acknowledged that despite there being a plethora of scam ICOs out there, there are still quite a few legitimate ones.
“We want people to continue to discover and learn about new products and services through Facebook ads without fear of scams or deception,” Leathern said. “That said, there are many companies who are advertising binary options, ICOs and cryptocurrencies that are not currently operating in good faith.”
Recently, thanks to Bitcoin’s meteoric growth in 2017, more and more startups have been seeking to piggyback off its success by launching ICOs to fundraise for their companies. As a result, the amount of money raised through ICOs showed an exponential increase in 2017, going from less than $100 million to over $1 billion dollars.
However, some companies have used ICOs as a way to raise great sums of money, but without the regulatory burden associated with raising cash though more traditional investment channels. Because of this, many ICOs have simply disappeared, with little recourse for the “investor” – a loose term, since those who pay into ICOs do not typically get a genuine stake in the new company.
According to Bloomberg, the US Securities and Exchange Commission (SEC) this week said it had seized the assets of a firm that said it had raised $600m in its ICO.
Furthermore, raising money using an ICO has been banned in South Korea and China, and regulators in other countries are warning against getting involved.
Just a few days before Facebook’s rather depressing announcement, one of the largest cryptocurrency exchanges in Japan announced that they have suspended all trading activities following what is said to be the biggest heist in cryptocurrency history. Last Friday, hackers stole $533 million worth of NEM coins from Coincheck, a Tokyo-based exchange – just four years after the infamous Mt. Gox hack.