Israeli Regulators Say Cryptocurrencies May Not Fall Under Securities Law

Tokens, the dedicated cryptocurrencies usually issued in initial coin offerings that confer holders the right to buy a product or service, won’t be considered securities, panel recommends

Two construction workers inspect the area at the bitcoin mining company Bifarms in Saint Hyacinthe, Quebec on March 19, 2018.
Bitcoin is a cryptocurrency and worldwide payment system. It is the first decentralized digital currency, as the system works based on the blockchain technology without a central bank or single administrator. / AFP PHOTO / Lars Hagberg
LARS HAGBERG/AFP

In an interim report released Monday, the Israel Securities Authority said it would not regard the largest cryptocurrencies, such as Bitcoin and Ethereum, as securities to be regulated under the securities law. 

“As a rule, cryptocurrencies intended solely for payment, clearing or exchange, other than a specific venture, and do not confer additional rights and are not controlled by a central entity, shall not be considered securities,” the panel’s report said.

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Tokens, the dedicated cryptocurrencies usually issued in initial coin offerings that confer holders the right to buy a product or service, won’t be considered securities.

However, they could be deemed securities and subject to regulations if they mimic the characteristics of a stock or bond, said the committee formed in August to decide the matter.

Policymakers around the world have struggled with how to regulate and tax cryptocurrencies, beginning with whether they should be regarded as currencies or as securities. (Assa Sasson)

On the other hand, as expected, the Israel Securities Authority on Wednesday said it would act to ban companies in the cryptocurrency business from being included in the Tel Aviv Stock Exchange’s share indices.

The decision, which will be implemented by amending the TASE’s charter, is aimed at protecting investors from indirect exposure to what it called the “risky and speculative” nature of cryptocurrencies through companies that invest in them or engage in bitcoin mining. 

The shares of a handful of cryptocurrency companies led by Blockchain Mining soared last year on the TASE as bitcoin prices surged higher, but both have since collapsed. By barring the companies from being included in the share indices, the ISA will be deterring passive investors like index funds from buying the shares and undercut demand for the stocks.