Israel develops new 'bitcoin' currency (Illustrative).
(photo credit: JPOST STAFF)
In a move that may open the door to a boom in Israeli cryptocurrency trading and blockchain innovation, the Supreme Court ruled last week that one of the country’s largest banks could not shutter a digital currency broker’s bank account until a public regulatory review can be completed.
The court’s temporary injunction on February 26 forbids Bank Leumi from indefinitely closing the bank account of Bits of Gold, a company which hosts trading and currency exchange in bitcoin, ethereum and in other cryptocurrencies, all powered by blockchain technology.
The ruling last Monday comes amid new regulations in Israel – seeking to tamp down on bitcoin and cryptocurrency volatility as the currencies can fluctuate in price by thousands of dollars in one day. Less legal uncertainty could lead to a rapid expansion in the local trading scene.
“[The court decision] will help Israel to stand in the frontlines or the frontier of the cryptocurrency industry, as long as the decision is upheld by the Supreme Court,” Ophir Gertner, founder of Smartologic Technologies, told The Jerusalem Post
While other countries like South Korea and France have cracked down on digital currency transactions, the US is leading in terms of blockchain innovation, with Gibraltar and Switzerland offering the most hands-off regulatory framework. Israel is still in the middle of the pack.
Gertner, a blockchain entrepreneur, sees more Israelis getting into the cryptocurrency scene once there are clearer regulations. He estimates that Israel is home to 30-40 cryptocurrency and blockchain-related startups.
“If the decision will be upheld, then it would be easier for Israelis to convert fiat [regular] money to cryptocurrencies,” Gertner added. “More people will hold cryptocurrency accounts and it will for sure, increase, or most likely, it will increase the amount of trading.”
The local craze is evident by the daily, queue out-the-door of people clamoring to get into the Bits of Coin currency exchange shop next to the Tel Aviv Stock Exchange.
At least several thousand Israelis have invested in digital currencies, raising questions as to taxation.
On February 19, the Tax Authority announced that it would classify bitcoin and other cryptocurrencies as “property, not a currency,” when it comes to taxation.
Cryptocurrencies will be subject to a capital gains tax ranging between 20-25%, according to Coindesk, while individuals mining or trading them as part of a business will need to pay the standard 17% VAT as well.
Many Israeli banks have sought to shutter the accounts of cryptocurrency investors and related businesses since last year, partially since the value of currencies such as Bitcoin has dramatically fluctuated over the past year.
The banks also claim that they’re concerned about money laundering and adhering to Bank of Israel regulations. The central bank has yet to formulate clear-cut cryptocurrency rules, deeming bitcoin to be an “asset,” like gold – that can hold “store value – and not a “currency.”
Yet Gertner thinks another agenda might be at play, that the banks are trying to sideline possible competitors.
“Because the whole concept of cryptocurrency is going to undermine traditional banking,” he said, by allowing for transactions to be conducted immediately and veritably without the need for a brick-and-mortar bank to transit the funds.
Yet it’s not all smooth sailing for Israeli cryptocurrencies.
Earlier in 2018, the head of the Israel Securities Authority, Shmuel Hauser, decided to ban bitcoin-related firms from trading on the Tel Aviv Stock Exchange.
That decision came under criticism by some experts, with one investment house economists telling the Post
that it would be the pithy equivalent of banning “dollar-related” businesses.
Bitcoin is currently trading at $11,123 (NIS 38,279) as of Sunday evening, Israel time.