As Bitcoin soars to new heights, Israeli regulators wary of potential pitfalls
Karen BLEIER (AFP/File)
Bitcoin hype is sweeping financial markets worldwide, and Israel is far from immune, taking to the cryptocurrency so intensely that infrastructure is failing to keep up with investor demand.
But some Israeli regulators are wary of the potential long-term implications of opening up the country's markets to risk, and are warning against including Bitcoin on Tel Aviv Stock Exchange (TASE) indices until appropriate regulations are in place.
"We will consider not letting bitcoin and the like come in to trade on the stock exchange through the backdoor in fancy dress before a regulatory framework is found for these financial instruments," Israel’s top financial regulator Shmuel Hauser vowed at a conference of the Israel Innovation Authority on High-Tech Growth and Debt Financing in Tel Aviv on Tuesday.
Not all share Hauser's hesitation, however. Israeli, startups, not averse to taking on risky new products, have embraced the currency despite concerns from establishment financial players.
The rapid embrace of the crypto-currency is the likely driver for Hauser’s concern, which comes off the back of Bitcoin success stories in Israel like Natural Resources Holdings Ltd, which reported six weeks ago that it was considering making moves into the blockchain sector, the technology which underpins crypto-currencies. Since this announcement, the company's share price has risen tenfold.
Once companies reach a certain market valuation, they automatically enter the benchmark indices in the stock exchange. Most investors, including the institutional investors who manage Israeli savings and pensions funds, invest in these indices and thus the portfolios of most Israeli investors would have had these stock included in their basket of investments.
Yet, in a clear sign of the volatility bubble which surrounds bitcoin, in the wake of the regulator’s comments Natural Resources saw their shares tumble by as much as 45% in the day's trading.
Hauser, however, made pains to state that he was not against growth, but rather wanted to avoid disruptive financial practice, such as that established by the recently banned binary options market.
Setting the tone of his speech, which included numerous other innovations outside of those bitcoin-related, Hauser said: “we want make sure that fintech will not be a revolution that creates anarchy. We don’t want fintech to be viewed as a jungle of investments in which the interests of the public are not protected.”
While there are those that applaud Hauser’s move as a sign of clear thinking, those working closely with the crypto-currency believe there are alternative options.
“We understand the risks that Hauser is trying to mitigate, but we do not believe that his statement is the correct way to help with this and we will correspond with him to find a solution to enable people to use it,” said Meni Rosenfeld, chairman of the Israeli Bitcoin Association, in a statement to i24NEWS.
In his comments, Hauser pointed to the difficulties regulators face in handling crypto-currencies.
“There isn’t any information on supply and demand, and whether anyone is in control of that supply and demand,” he noted. “It looks like a bubble and behaves like a bubble, as there is no way to explain the price increase from $2,000 to $11,000 within a few months and then a sudden drop of 20% within a day, and another increase to $14,000 within a few more days."
"That does not mean that bitcoins or their kind are not to be considered [for investment], but it does mean that it should be examined at the national level by all regulators,” Hauser cautioned.
Bitcoin’s domestic uncertainty comes as the crypto-currency has taken a step towards the mainstream with the launching of the newest product in the Bitcoin line.
The Chicago exchange now allows users to take bets on Bitcoin's price in the future, a move widely seen as indicative of Bitcoin's shift towards greater legitimacy and one which it is hoped, will decrease the wild volatility seen in past months.
Yet, as Bitcoin continues to take steps confirming its enduring place in the realm of financial products, while plotting its meteoric rise, the new product continues to find skeptics in the world of establishment financial institutions and regulators.
Written by i24NEWS Economy Correspondent Asher Westropp-Evans
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