It’s been a difficult few weeks for the cryptomarkets, with governments and regulators beginning to step up the fight against the cryptomarkets.Before the exponential gains of 2017 and the meteoric growth in the number and sheer size of funds raised through initial coin offerings (“ICO”), neither governments nor regulators were particularly concerned with the cryptocurrency market, which was perhaps more of a distraction than a medium for regulatory arbitrage. Investors have managed to avoid KYC and money laundering processes associated with the more traditional asset classes and of course, taxation, until now. From an investor and business perspective, taxation is a key consideration when looking to invest or incorporate a company in a given jurisdiction, with governments able to lure businesses and investment by reducing tax rates and of course, look to be less attractive by raising rates.In the case of cryptocurrencies, the nature of cryptocurrencies and the fact that they don’t fall within existing tax code classifications has allowed investors and cryptocurrency exchanges to enjoy a number of fruitful years, void of capital gains or income tax. Things are changing and rapidly.With China having already banned ICOs, governments elsewhere have seen this as an opportunity to embrace the ever more popular method of fundraising, while also benefiting from the sizeable market created through taxation.The Israeli government has published and circulated a draft proposal, which offers solutions to ICO taxation, with Israel’s Tax Authority looking to introduce VAT on ICOs. Under the proposal, companies or projects, through token sales, who raise in excess of 15m ILS in revenue will fall under existing accounting regulations.Additionally, all cryptocurrency related businesses are also expected to produce P&L statements and therefore be liable for tax. The proposal goes on to state that investors, who sell tokens purchased from an initial coin offering, will be liable to taxation. Interestingly, Israel’s Tax Authority may have also closed the loop on exchanges, by looking to classify any groups that trade tokens as a business as a financial institution for tax purposes.The ICO market framework has been considered a positive and a viable alternative for Israel’s tech start-ups that struggle to succeed, with Venture Capital firms giving particularly unfavorable terms that ultimately result in management having to sell-out or worse yet, call it a day.Taxation will certainly become a factor for the tech start-ups to consider, but with greater flexibility and clarity over tax policies, fund raising through the ICO market does remain a viable option. The issue that fundraisers may face, however, is investors appetite that could be tainted should the proposals be passed into law.With Israel’s Tax Authority having already classified cryptocurrencies, such as Bitcoin, as a taxable asset, with investors subject to 25% capital gains tax, the latest development is a bid by the Israeli government to increase the certainty and tax transparency for those operating within the cryptocurrency space.When considering the fact that miners and cryptocurrency exchanges are going to have to pass on some of the tax liabilities on to their customers, with the introduction of a 17% VAT on top of existing fees, for some the proposed tax codes may become a deterrent, as tax jurisdictions elsewhere being far more favorable.Israel’s Tax Authority will review comments from the crypto community for 2-weeks before the Bill is enacted and becomes law, which suggests some scope for amendments. It will be interesting to see whether there is any push back from high ranking officials. Israel’s status the start-up nation comes with pride and some care will be needed to not strangle the nation’s entrepreneurial drive.The VC market is already a challenge for many. The ICO market could die a death before it's even thrived, if tax codes are too punitive, though with other governments also looking to regulate the ICO markets, a global united front may save the day. Cryptos: A financial Asset, not a CurrencyWith taxation now being addressed, not just in Israel, but in other jurisdictions, the issue of whether cryptocurrencies are a financial asset or a currency has also been put to bed.The ISA has been very clear that cryptocurrencies are not considered a currency and will continue to treat them as financial assets, with Israel’s Tax Authority of the same view, resulting in cryptocurrencies being liable for taxation.Crypto communities have accepted the classification, but have attempted to garner more favorable tax policies and regulatory frameworks in order to sustain the market. With concerns over anonymity favoring criminal and terrorist activity, favorable frameworks are certainly unlikely. The only question is whether tax codes will ultimately be acceptable by fundraisers and more importantly, investors.Israel’s start-ups are in need of an alternative to Venture Capitalists and the ICO market has been just that in other parts of the world that led to 891 ICOs raising in excess of $6bn in 2017, according to ICO Data. In that case, Israel's authorities must regulate and adapt.