Israel Officially Declares Bitcoin Is Not a SecurityApril 1, 2018
The Israel Securities Authority’s Committee for the Examination and Regulation of ICOs (Initial Coin Offerings) issued various recommendations that are set to dispel uncertainties and balance things out as regards technological innovation and protection of investors. Whether or not digital currencies are considered securities is part of the ISA committee’s findings, a decision that carries significant implications for future crypto regulations.
The committee revealed that “as a general rule, cryptos designed to be exclusively used as a means of payment, exchange, or clearing and aren’t limited to some specific venture; which don’t confer additional rights; and which aren’t controlled by some central entity, shall not be considered as securities.”
Analysts believe that this decision could be setting a precedent as many developed economies across the world struggle with classifying cryptos. Israel has had a somewhat hands-off approach when dealing with crypto regulation matters. For instance, unlike in the U.S Bitcoin ATMs in Israel don’t ask for basic know-your-customer identification. Just put in some fiat, receive bitcoin.
The committee’s report explains that “the question of whether or not digital currencies should be considered securities will be determined based on the features and circumstances of individual cases with the purpose of the law.” The report further details that “cryptocurrencies with similar rights to those conferred by such traditional securities as participation units, bonds, and shares, will be considered securities. In contrast, digital currencies representing rights to a service or product and which are acquired solely for purposes of use and consumptions as opposed to investment won’t be deemed securities.”
The recommendations of the committee were presented to Ms. Anat Guetta, the ISA Chair. The newly appointed Chairperson has so far been quite hostile to BTC. Earlier this month, she announced that her agency planned to ban BTC from the country’s stock exchange indices. “We’ve decided to prevent exposing passive investors to firms mainly involved in cryptocurrency activities. Investments in these companies are highly risky, volatile, and speculative. We have also published warning to investors on the risks of investing in digital currencies,” she stated.
A delicate balance
The ISA created the ICO committee in the summer of 2017. The committee’s role is to “examine the applications of Security Laws to the issuances and public offerings in the nation based on the DLT (Distributed ledger technology). The committee is also assigned to conduct studies and analysis of the said ventures, draft a detailed comparative review relevant international laws, and then recommend regulatory policies in areas that are related to Securities Laws. The aim is striking some balance between the promotion of technological innovation and protection of investors,” the securities authority explained.
The determination of whether a digital currency is considered a security typically stems from “whether the digital token can’t be used after issuance or if it may be traded on another market, which can be indications that it was acquired for investment, and not for consumption.”
The report makes it clear that the Israeli regulators are trying to strike a delicate balance while facing realities that cryptos and ICOs bring about. For ICOs the committee said that “the usage and extension of particular existing and also future capital-raising tracks for Initial Coin Offerings should be considered, which includes the examination of such issues as raising funds through ICOs, and lenient regulations for small-scale ICOs, among other issues.