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New recommendations to oversee and regulate the crypto industry within Israel have been brought forward. Israel’s chief economist proposed a list of recommendations for regulating digital assets in the country to bring trading platforms and cryptocurrency issuers into compliance and would increase the authority granted to its financial regulators. The proposal also recommends that Israel should strengthen assurance and protection to the investors.
On November 28 2022, the Minister of Finance received a report submitted by Chief Economist at the Ministry of Finance, Shira Greenberg, calling for a new regulatory framework, legislating licencing powers and supervision over the supply of backed digital assets, including stablecoins and provision of financial service through them. Greenberg noted, “The regulation processes are being formulated and determined during this period in various countries in the Western world, and it is recommended that the state of Israel will act in accordance with the emerging standards in the developed world.”
The Greenberg report also calls for transfer supervision over digital assets that have significant stability or economic effect on the bank of Israel to be regulated. The proposed report recommends the improvement of investors’ certainty and protection by imposing stricter licencing requirements on trading platforms and cryptocurrency issuers and ensuring that funds originating from digital assets are safely managed. The guideline also includes a proposal that allows the payment of taxes on crypto held outside of the country through the bank of Israel. The taxation of cryptocurrencies comprises a significant part of the proposal. According to Israel’s tax authority, uncollected crypto taxes from 2019 to 2022 could amount to several billion shekels. Insiders from Bitcoin Method support the claim that the recommendations would establish an inter-ministerial committee to supervise the regulation of decentralised autonomous organisations (DAOs).
Greenberg said it was important that policymakers and lawmakers consider the concept of technology neutrality when enacting digital assets-related rules. Minister of Finance Avigdor Lieberman praised Greenberg for her work and said, “The report constitutes the most comprehensive and up-to-date report currently available on this issue for government use in Israel, and the report will serve as a basis for future decisions and legislation on digital asset-related matters for months to come.”
Greenberg shared data in her report that states that Israeli citizens have accounted for 21 million blockchain-based transactions, equating to 0.04% of all global crypto transactions. Only 2% of Israelis described owning or using a crypto wallet. Israel is often referred to as a tech-savvy nation and has shown interest in cryptocurrency. Israel wants to bolster its core business value by improving its product range to attract foreign investors. Further, by marketing them to smaller exchanges, they strengthen their digital capabilities and sharing of analytics through the implementation of innovative technologies and Distributed Ledger Technologies.
Israel’s progress in the crypto space
Israel awarded its first-ever permanent licence in September 2022 to a private company, Hybrid Bridge Holdings Ltd, to engage in crypto-related activities. In October 2022, Israel formed a blockchain-based platform to enlarge its trading services to cryptocurrencies and other digital assets. Tel Aviv Stock Exchange (TASE) aims to transform its currency exchange platform by adding blockchain and digital asset-based trading platforms to its financial marketplace. The country also has a five-year (2023-2027) strategic plan to revolutionise the financial industry in the region. In Israel, cryptocurrency does not fit under the legal definition, but tax does apply to crypto holders. Any capital gains or income from crypto in their annual tax returns to avoid Israel Tax Authority (ITA) penalties are very steep.
Still, in October 2022, Israel’s Ministry of Finance and TASE launched a pilot project to conduct the testing of a blockchain-backed platform for digital bond trading. The news came out under the name Eden, with intentions to reduce costs and optimise the procedure of national bond issuance. During the live test, the participating banks received a new series of tokenised government bonds on their e-wallets via the project platform, transferring the money held in digital currencies to the e-wallet of the Israeli government. The pilot project is scheduled to be completed by the end of Q1 2023. According to data conducted by Chainalysis, a blockchain data firm noted that Israel ranked at number 111 out of 146 countries in a global crypto adoption index. Despite all the positive moves that Israel has made this year, if no strict regulations are implemented, Israel’s fate could be doomed.
Greenberg’s recommendations intended to strengthen and protect the crypto industry and the nation all at once. Israel’s steps in the crypto world show that the country plans to move with time. In the process of doing that, Greenberg is keeping his nation in mind, remaining optimistic about the crypto industry’s long-term future, and believing next year should be better despite the challenges. The crypto regulation recommendation proposal has received a thumbs-up from the Minister of Finance and we are now waiting to see if it will be approved. While Israel looks at the recommendations, we promise to inform you of any developments in this report.
Byline: Hannah Parker
