Bits of Gold, an Israeli cryptocurrency exchange, announced on the company’s social media pages on Sunday that it became the first crypto company in the country to receive a license from the Capital Markets Authority.
With the license, Bits of Gold can hold digital currencies through protected custody in a “Bits of Gold Wallet” that they have been developing for some time. Additionally, it will start providing a solution that gives banks, and other financial institutions access to its services for digital assets.
According to Bits of Gold, the license is the next step in its mission to increase Israelis’ access to the world of digital currencies “simply and securely.” Israeli authorities have been limiting the use of cash for payments to combat criminal activities and promote the country’s shift to digital payments.
Roadblocks in Crypto Adoption in Israel
Despite this, two overarching factors have delayed institutional adoption in the country. First and foremost, Israeli banks have historically been hostile toward cryptocurrencies. Banks in Israel frequently block crypto services, citing problems with anti-money laundering (AML).
Secondly, Israel’s tax regulations are another hindrance to institutional adoption. In a recent survey published on September 8 by cryptocurrency analytics company Coincub, the country was listed as the third worst for crypto taxation.
Israel does not grant any typical exclusions applying earnings from conventional currencies to bitcoin gains. Therefore, a capital gains tax of up to 33% is generally used to sell a cryptocurrency. Income tax is applicable up to about 50% if the cryptocurrency investing activity is considered on a business basis.
One local bank, Leumi, claimed that Bits of Gold’s (BTC) business made it impossible for them to comply with AML regulations. Initially, the Israeli Supreme Court sided with Leumi in 2017. The Court ruled that Leumi was legally permitted to deny service to Bits of Gold.
However, two years later, in 2019, the Court reversed the decision. This Supreme Court ruling established a precedent for other cryptocurrency businesses by ruling that Leumi could not block Bits of Gold’s account due to regulatory concerns.
Earlier in September, Israeli regulatory authorities granted the nation’s first cryptocurrency license to another private company, Hybrid Bridge Holdings (HBH). The CEO, Giyora Ran, informed local media outlet, Globes that HBH is developing a bitcoin custody and exchange platform. However, it’s not yet apparent if a finished product is ready to market.
New Crypto Regulations
New AML regulations implemented by the Israeli government have made it substantially easier for banks and the cryptocurrency industry to work together. Additionally, the development mandated that cryptocurrency companies obtain licenses; however, companies that applied were already granted a temporary license to carry on with their operations.
Shlomit Wagman, director of the Money Laundering and Terror Financing Prohibition Authority, was quoted by the Jerusalem Post stating that “the new AML regulations will aid the nation in reducing illicit use of digital assets while also providing the sector more credibility and recognition.”
This year, the Israeli government has been working to develop legislation to stop illegal activity involving cryptocurrencies. In July, Israel’s Ministry of Finance proposed a bill mandating citizens who buy a cryptocurrency for more than $61,000 should file tax returns. In the meantime, Israel’s central bank has been experimenting with its own virtual money.
This development supports Bits of Gold’s historical position as the first established company to obtain the license. The business, founded in 2013 and active in the local crypto community, applied for a license in 2018.
Bits of Gold is developing a platform to let local and European banks and fintech firms sell cryptocurrencies to customers. The company intends to offer cryptocurrency custody services through its new digital wallet next month.