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The National Internet Finance Association of China (NIFA) warned against the risks of initial coin offerings (ICOs) and virtual currency trading in a recent statement after illegal ICOs and trading of virtual currencies re-emerged.

The NIFA, a self-disciplinary industry body, warned Chinese consumers of potential losses from illegal fundraising, financial fraud and pyramid selling through ICOs and virtual currency trading in the guise of developing blockchain technology.

China has reinforced a crackdown on the rise of illegal ICOs and virtual currency trading, even as the country's intensive backing of blockchain technology generated excitement in the cryptocurrency world. 

Since January, China has shut down six domestic virtual currency trading platforms, cracked down altogether 203 overseas virtual currency exchanges, and closed nearly 10,000 virtual currency accounts operated via two major non-banking payment institutions, China Central Television reported. 

Additionally, 300 mini programs and subscription accounts related to the advocacy of virtual currency trading have been shut down on Chinese social media giant WeChat.  

The cities of Beijing, Shanghai and Shenzhen all investigated virtual currency exchanges in November. For example, the finance bureau of Shenzhen identified 39 virtual currency firms for inspection, the Shenzhen Special Zone Daily reported. 

Shanghai targeted its investigation on businesses that conducted virtual currency trading, token sales and distributions of tokens from overseas ICOs. Beijing-based virtual currency exchange BISS was shut down by local police in November and at least 10 people were arrested.

The crackdown unsettled companies in the industry. Many Chinese firms doing virtual currency transactions overseas are telling employees to work at home instead of going to the office, to avoid regulatory penalty, an employee of a Beijing-based virtual currency start-up surnamed Zheng told the Global Times. The start-up has set up a digital currency exchange overseas.

"The virtual currency industry in China has cooled down in terms of its capital and investors' enthusiasm. There is no basis for the industry to revive in China as the financial feature of virtual currency is not admitted by Chinese regulators," Cao Yin, vice director of the Advanced Research Institute of Blockchain under the Yangtze Delta Region Institute of Tsinghua University, Zhejiang, told the Global Times on Sunday. 

He noted the scale of ICO fundraising in China reached several billion yuan last year, but he estimated the figure would be less than 100 million yuan ($14.34 million) in 2019. 

China's regulations on virtual currency trading are effective, plus most Chinese people now have a correct understanding of virtual currencies since the industry bubble in 2017. Media reporting of illegal fundraising and financial fraud via virtual currency trading has also educated the public, Cao said.

"However, it is good for southern cities in China, such as Shenzhen and Hainan, to research on how to introduce virtual currency together with the emerging blockchain-based financial technology to serve the real economy," he noted. 

China's central bank or the People's Bank of China, plans to launch a small-scale experiment of a bank-backed digital currency in Shenzhen before the end of the year and then scale it up in 2020, Caijing Magazine reported on December 9. 

In addition to Shenzhen, the pilot will take place in the eastern city of Suzhou, East China's Jiangsu Province, the report said. Media outlets have speculated that China may become the first major economy to issue a sovereign digital currency.