Israel’s crypto market is at its peak of popularity. Widespread adoption this growth is being threatened by the surging tide of fraud and lack of regulatory appetite. Conflicting estimates of digital wallet ownership and billion-dollar assets underscore the need for clear standards and consumer protection.
Government agencies provide differing estimates about the extent of cryptocurrency use in Israel. According to the State Comptroller’s recent report, the Finance Ministry has 200,000 digital wallet holders as an estimate. In contrast, the Tax Authority wants to bring that number down to 500,000. Although the Bank of Israel has put out a more modest estimate of about 60,000 Israelis with digital wallets.
Despite the discrepancies in user numbers, the assets held in these digital wallets are estimated at a substantial $1.5 billion. According to the Israeli Crypto Companies Forum, the number of wallet holders could be as high as 600,000. That just goes to show how dominating the power of the market is.
The lack of a clear, cohesive regulatory structure is troubling. The Finance Ministry released draft regulations to impose taxes on companies that would be trading in digital currencies. At the same time, crypto is now tentatively being proposed to the Tax Authority as an asset class taxable under a capital gains tax. So far, comprehensive rules remain elusive.
The prior administration also catalyzed efforts by many states to develop better frameworks for governing digital assets. The Bank of Israel, the Tax Authority and Securities Authority still have to implement detailed rules. This regulatory black hole has created serious exposure to fraud for investors and dangerous opportunities for market manipulation.
"People just put money in without realizing the entire thing is one big fake. It’s very hard to snap them out of it. Because we operate a face-to-face service, we can speak to people and warn them. I see the person in front of me—for me, it’s not just another transaction." - Avi Dayan, CEO and founder of Bitcoin Change
A major force behind this regulatory uncertainty has been the hesitance of Israeli banks to facilitate crypto transactions. This hesitancy pushes crypto users to look for other ways, possibly deepening their risk.
The Israeli Crypto Companies Forum has sounded the alarm. They caution that the lack of regulation is forcing blockchain companies to move out of Israel. With a quarter of blockchain firms no longer hiring in the state, that means talent and investment are all slipping out the door.
"We’re witnessing a major shift in scammers’ methods. In the past, they relied on fake websites and edited photos—today, they use advanced AI technologies to generate virtual figures that look and sound exactly like the real thing,” - Yoav Keren, CEO of Israeli cyber firm BrandShield
Now, the development of elaborate and advanced scams are making things even worse for the Israeli crypto market’s scandalous situation. And now, scammers are deploying state-of-the-art generative AI technologies to produce highly convincing false identities and schemes. As a consequence, investors find it difficult to identify the valid opportunities from the scams.
In a recent article, Avi Dayan, CEO and founder of Bitcoin Change described customer trepidation.
"We definitely sense this fear among customers. But there’s a big difference between putting your money into an exchange and keeping it in a private wallet. When your money is with a third party, the chances of being hacked are much higher than if it’s in your personal wallet. I’ve been in this business for eight years, and I’ve never seen a private mobile wallet get hacked." - Avi Dayan, CEO and founder of Bitcoin Change
As Hovav Elster of the Finance Ministry’s Chief Economist Division told us, from their perspective the issue is one of risk management.
"It’s a matter of risk management. The collapse of crypto companies poses real risks to consumers.” - Hovav Elster from the Finance Ministry’s Chief Economist Division
The Israeli Crypto Companies Forum advocates on behalf of over 250,000 Israeli crypto customers. They are seeking to establish effective and transparent regulations to protect investors and cultivate a thriving crypto ecosystem. Bitcoin Change’s CEO told Times of Israel how he had been enraged after waiting seven years for a license from Israel’s Capital Markets Authority. He noted the huge red tape crypto companies have to go through.
