Israel remains a hotspot for cryptocurrencies, but the quick drop in Bitcoin’s value at the start of the year led to regulators questioning the industry. The head of the Israel Securities Authority, Shmuel Hauser, stated that the government was considering not allowing trading in cryptocurrencies.
A major drawback for bitcoin and Israel is that a lot of companies want to jump on the cryptocurrency bandwagon.
Companies have renamed their businesses to add “blockchain” to their names to inflate their stock prices. Regulators are concerned that stock brokers will use these tactics to lure in potential investors for companies that are not bitcoin or blockchain-related.
One of the hotspots for cryptocurrency and blockchains is the modern state of Israel. The Israeli Knesset, or Parliament, recently voted to tax cryptocurrency under the heading of profit, and not currency. The Israeli Diamond Exchange is launching its own cryptocurrency coins, backed by gemstones. Although some of the latest crypto companies, such as Trecento, MillionCoin, and CGCX, aren’t based in Israel, they are all eager to open up their various platforms there.
Israel’s strong startup culture has led to many companies wanting to expand their operations in Israel.
The government has even discussed launching its own digital shekel. The Bank of Israel is considering launching the digital shekel as a means of reducing Israel’s reliance on cash, according to a report by Reuters.
An approval for a digital currency would allow for the currency to be added into the 2019 budget.
The digital shekel could leverage blockchain, allowing for a faster, safer way to conduct transactions. Blockchain offers the potential to offer smart contracts that allow for agreements to be self-regulating when certain criteria are met.
The digital shekel would be a centralized currency, yet it would be safe and also meet Israel’s money laundering rules. Bitcoin poses concerns for Israel’s money laundering rules due to the decentralization of the currency. There is also anonymity with bitcoin that’s not present with a digital shekel.
But Israel is posed to benefit from blockchain and virtual currencies even if a digital shekel never comes to fruition.
Hapoalim partnered with Microsoft in 2017 to create a blockchain platform that offers simple, quicker signing up guarantors. The Tax Authority has also made strides, noticing the rise in virtual currency, and stating that cryptocurrencies will be taxed as capital gains.
A temporary ruling in February did confuse investors and the industry when the Israeli Supreme Court made the decision to block Leumi Bank from selling cryptocurrency. The block was temporary, but it still shows that the government has some work to do with legislation to ensure that Israel is a cryptocurrency-friendly country.
The move to temporary block the sale has been seen as a “win’ for many in the industry who are calling for regulation. Strict forms of regulation would allow for a concrete, legal means of selling and trading cryptocurrency that abides by the laws of Israel.
Israel also recently issued a draft law on cryptocurrency reporting at the end of May. The laws will impose reporting requirements and will require financial service providers to report any suspicious activity of clients that transfer over $1,400 from their digital wallets.