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Israel ISA Deems Cryptocurrencies Not a “Security”



The Israel Securities Authority (ISA) Committee for the Examination and Regulation of Initial Coin Offerings (ICOs) released a series of “recommendations designed to dispel uncertainty and strike a balance between technological innovation and the protection of the investors.”

Also determined was whether cryptocurrencies such as bitcoin are securities – a major decision that holds major implications for future regulation.

“As a general rule,” the ISA Committee said, “cryptocurrencies that are designed to be used exclusively as a medium of payment, clearing, or exchange and are not limited to a specific venture; that do not confer additional rights; and are not controlled by a central entity — will not be deemed securities.”

Experts are staunch in their belief that this could be a precedent-setting ruling, as economies all over the world are struggling in how to classify cryptocurrencies. Israel has been at the forefront of breaking this challenge, with a hands-off approach when it comes to regulation of crypto.

Bitcoin ATMs in the country, compared to those in the United States for example, do not ask for basic know your customer identification.

“The question of whether a cryptocurrency should be considered a security will be decided on the totality of the circumstances and features of each case in accordance with the purposes of the law,” the report outlined.

“As a general rule, cryptocurrencies that confer rights similar to the rights conferred by traditional securities such as shares, bonds, and participation units, will be deemed securities. In contrast, cryptocurrencies that represent rights to a product or service and are acquired solely for the purpose of consumption and use and not for investment purposes, will not be considered securities.”

Recommendations were forwarded to ISA Chair Anat Guetta. The recently appointed Chairwoman has been hostile to bitcoin, saying earlier this month how her agency would bar it from the nation’s stock exchange indices.

“We have decided to prevent the exposure of passive investors to companies whose main activity involves cryptocurrencies. Investment in these companies is high risk, speculative and volatile. We also published a detailed warning to investors about the dangers of investing in cryptocurrency,” emphasized Guetta.

The ISA set up the ICO committee in the summer of 2017. Its goal is to “examine the application of the Securities Law to public offerings and issuances in Israel based on distributed ledger technology (DLT). The committee was assigned to study and analyze these ventures, draft a comparative international review of the relevant law, and outline a recommended regulatory policy in areas related to the Securities Law, with the overarching aim of striking a balance between promoting technological innovation and protecting the investors.”

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