Israel crypto industry pushes regulatory changes amid strong public support

The Israeli Crypto Blockchain & Web 3.0 Companies Forum last week launched a lobbying effort to push regulatory reforms that research from KPMG says may add 120 billion shekels ($38.36 billion) to the country’s economy by 2035 and create 70,000 new jobs.

At a Feb. 3 event in Tel Aviv, Forum leader Nir Hirshman-Rub said there is broad public support for legislation that would relax rules on stablecoins and tokenization, along with simplifying tax compliance requirements.

In the wake of the US-brokered ceasefire of the Gaza war, 2026 is seen as a “defining year” for the local digital assets industry, Hirshman-Rub said.

Impact of Oct. 7, 2023, attacks on Israel ‘s crypto ecosystem. Source: Chainanalysis

“The Israeli public is already there and the politicians need to act,” Hirshman-Rub told Cointelegraph on the sidelines of the Tel Aviv event. “More than 25% of the public already has had crypto dealings in the last five years and more than 20% currently hold digital assets,” he said, citing the KPMG research.

Steady growth as digital asset landscape evolves

An October Chainalysis report showed that the G-20 country’s crypto economy has showed steady growth, with inflows topping $713 billion last year. Those levels reflect a sharp increase in crypto volumes in the aftermath of the October 2023 Hamas attacks, which were sustained by strong retail activity, the report said.

Israeli companies, such as Fireblocks and Starkware, have established leadership positions in the global digital assets landscape and are among the Forum’s sponsors. According to NGO Startup Nation Central, more than 160 locally founded companies have attracted more than 5% of the $30 billion invested worldwide in the sector, employing more than 2,500, primarily in the greater Tel Aviv area.

Blockchain and digital assets startups have a large share of Israel’s Fintech sector. Source: Startup Nation Central

“The problem is that once a company here disclosed that it deals with digital assets, Israeli banks refuse to serve the company or require the company’s attorneys to make an impossible declaration that funds originating in a digital asset will not be deposited in an Israeli bank account,” said Hirshman-Rub. “It may not be outright refusal, but simply dragging their feet, adding demands in a never-ending due diligence process.”

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Among other barriers that the group seeks to reform is an income tax ordinance that penalizes token distribution to employees as stock options. While traditional stock options provided to employees are taxed at a 25% rate, tokenized options will pay a 50% rate for similar value.

A national strategy

In July, the country’s National Crypto Strategy Committee presented an interim report to the Israeli Knesset for parliamentary review. The committee outlined a strategic framework underpinned by five pillars, including establishing a unified regulator, creating token issuance rules, and banking integration.

In August, the Israel Tax Authority published a new Voluntary Disclosure Procedure that would offer taxpayers a path to disclose previously unreported income and assets, including digital assets, and obtain immunity from criminal proceedings. It was the agency’s third attempt to implement a disclosure regime.

However, last month, the agency said taxpayer participation has so far fallen short of expectations, but committed to seeing the initiative through to the end of August 2026.

“The Israeli banking system is not willing to accept cryptocurrency, and it is also very difficult to bring in funds as a result of selling cryptocurrency,” Tax Authority director Shay Aharonovich said, according to local media reports. “There is no doubt that this also affects the willingness to make voluntary disclosure, because in the end people do not just want to pay the tax, but to use the money.”

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