The Israeli crypto industry is intensifying its push for regulatory changes, buoyed by strong public support for digital assets. The Israeli Crypto Blockchain & Web 3.0 Companies Forum recently launched a lobbying effort aimed at reforming regulations concerning cryptocurrencies.
Nir Hirshman-Rub, a leader within the Forum, stated at an event in Tel Aviv on February 3rd that there is broad public support for legislation that would relax rules on stablecoins and tokenization, and simplify tax compliance requirements. He emphasized that 2026 is a "defining year" for the local digital assets industry following the US-brokered ceasefire of the Gaza war.
According to research by KPMG, these regulatory reforms could add 120 billion shekels ($38.36 billion) to the country's economy by 2035 and create 70,000 new jobs. Hirshman-Rub told Cointelegraph that over 25% of the Israeli public has engaged in crypto dealings in the last five years, and more than 20% currently hold digital assets, highlighting the significant public interest in cryptocurrencies.
Currently, cryptocurrency is legal in Israel but regulated. It is officially classified as a "financial asset" under the Supervision of Financial Services Law and treated as a taxable capital asset by the Israel Tax Authority, but it is not recognized as legal tender. Crypto activities are overseen by multiple bodies, including the Bank of Israel and the Israel Securities Authority (ISA). Businesses operating in the crypto space must comply with strict anti-money laundering (AML) and Know Your Customer (KYC) regulations.
The Supervision of Financial Services Law mandates that service providers, such as exchanges, obtain a license to operate. The Israel Tax Authority treats crypto as an asset, subjecting profits from its sale to capital gains tax.
Several regulatory bodies oversee the crypto landscape in Israel. The ISA oversees public offerings of cryptocurrencies and determines whether a digital token qualifies as a security subject to securities law. The Israel Tax Authority (ITA) classifies cryptocurrencies as taxable assets and issues guidelines on capital gains tax. The Bank of Israel issues directives to financial institutions.
To operate legally in Israel, crypto businesses must adhere to comprehensive AML and counter-terrorist financing (CTF) compliance requirements. Financial institutions are required to conduct thorough due diligence on all customers.
In 2018, the tax authority declared crypto a taxable asset, subjecting gains to capital gains tax. More recently, regulators have focused on refining the rules, with the ISA proposing to formally include digital assets in securities law and the Ministry of Finance introducing new legislation to create a clearer tax framework.
Despite the lack of a comprehensive legal structure for cryptocurrencies, the Israeli government generally supports advances in technology and the regulation of laws and incentives that can further industry growth. The government recognizes the potential risks associated with cryptocurrency activities, including money laundering, financial instability, privacy concerns, and fraud, and acknowledges that the absence of adequate regulation may exacerbate these risks. To address these concerns, the government is committed to enacting legislation and implementing an informed risk management structure.
The Association of Banks in Israel has also called for regulation, with its chairman, Moshe Pearl, sending a letter to Dr. Hedva Bar, the supervisor of banks, expressing concern that the banking system is exposed due to the lack of clear guidelines. Dror Shapira, head of Inviou, a blockchain-based platform, has also emphasized the need for regulatory intervention to provide clear guidelines for banks and customers.
An October Chainalysis report indicated that Israel's crypto economy has shown steady growth, with inflows topping $713 billion last year. These levels reflect a sharp increase in crypto volumes after the October 2023 Hamas attacks, sustained by strong retail activity. Israeli companies like Fireblocks and Starkware have also established leadership positions in the global crypto landscape.