An electronic board displaying market data is seen at the entrance to the Tel Aviv Stock Exchange.
(photo credit: REUTERS)
The Tel Aviv Stock Exchange announced on Tuesday that it will blacklist bitcoin-related companies from being traded or listed publicly.
“We will not allow companies whose values are based on bitcoin values, such as Natural Resource Holdings, to be included in TASE indices,” head of the Israel Securities Authority Shmuel Hauser said on Tuesday. “We will also consider not to allow trading in ‘backdoor’ ‘costumes’ of bitcoins or alike.”
Bitcoin, a digital payment method, has fluctuated dramatically, going from $2,000 to around $17,000 within a few months before suddenly plunging 20% within a day, further raising concerns that it could be a bubble.
Israeli regulators issued the bitcoin-related ban over concerns that stockbrokers were using bitcoin fluctuations, an unregulated product, in order to inflate their own stock.
Bitcoin is the most famous application of a blockchain, a legitimate and transformative technology which relies on a distributed ledger to conduct encrypted and instantaneous transactions.
“Companies would change their name to put ‘blockchain’ in it and their prices have gone up eight to 10 times in the past few months,” said GKH Law Offices attorney Jonathan Irom, who heads his firm’s digital currency practice. “It’s unclear whether [banned company Natural Resource Holdings] even has a relationship to blockchain. It’s a bit unclear, they’ve released various statements. I think that’s what triggered the concern.”
The supply and demand behind bitcoin remains unknown, along with the fact that no central bank is backing the cryptocurrency as legal tender.
Since the announcement, the stock of the bitcoin-related company Natural Resource Holdings has gone down more than 54% on TASE as of closing. Prior to Tuesday, the company’s stock had risen some 6,000% in the last two months. With its overnight rise, the company could’ve been considered for the TA-125 index, which lists the exchange’s 125 highest-capitalized companies.
Some market analysts challenged the new Israel Securities Authority regulation, questioning whether Natural Resource Holdings is even connected to bitcoin and claiming that the rule against bitcoin-related companies could obstruct blockchain innovation.
“[ISA head] Hauser doesn’t know what he’s talking about,” said a senior economist who spoke on condition of anonymity. “What I don’t understand is: What is a ‘bitcoin company?’ It’s like they’re going to tell you: ‘We won’t allow a shekel company into the stock exchange.’ There’s no such thing as a shekel company, there are no bitcoin companies [since it is a digital currency].”
The economist added: “Natural Resource Holdings has nothing to do with bitcoin. They said they’re starting to look at the blockchain world... Will Hauser not allow blockchain companies, because all the companies in the world will [eventually] use blockchain?”
Separately, the lack of blockchain regulation in Israel is forcing fledgling financial-technology start-ups to incorporate overseas, despite efforts by the government to grow a local fin-tech ecosystem.
“On the one hand, [Finance Minister] Kahlon is giving a lot of tax benefits for start-ups and on the other hand, they’re pushing blockchain companies out,” attorney Irom observed.
Until the markets can agree on a more suitable regulatory framework, the ISA is considering whether to bar other cryptocurrency companies from listing on TASE . The ISA task force is also looking into tightening regulations for initial coin offerings, or unregulated start-up crowdfunding via cryptocurrencies.
ICOs, which are powered by blockchain, can resemble stocks, and the offering and selling of these currencies can appear to be similar to traditional initial public offerings.
The ISA seeks to determine whether ICOs can be classified as securities, and fall under securities laws, as currency, as a financial instrument or as a hybrid “coin security.” Hauser added that an ICO report should be submitted by the end of December.