Trading in digital currencies and other assets has transformed from being a marginal and unregulated market into a major component of the economy of the future, says a study from TASC Consulting and Capital, which examined the digital currency market in Israel and the characteristics of its traders.
The rapid development of this market has drawn the attention of many players, including private and institutional investors, as well as other financial institutions. The number of investors active in cryptocurrency and other digital assets in Israel is estimated at about 200,000 people – about 3 percent to 4 percent of the adult population, the study found.
This figure is close to the figure in the United Kingdom, but much lower than in the United States – where it is estimated to be over 10 percent of the adult population.
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TASC also examined who is the typical Israeli crypto investor. The survey included some 600 participants, and showed that 70 percent of cryptocurrency investors in Israel are men; and 58 percent of them have college degrees. In addition, a large majority, 72 percent, hold less than 10,000 shekels ($3,100) of crypto currencies, and 98 percent own less than 100,000 shekels worth.
The survey found that 55 percent of these investors are from 21 to 40-years-old, a much larger share than the 40 percent they represent in Israel’s overall adult population. About 30 percent of the crypto investors said they have experienced fraud in the sector or know someone who has. Over 80 percent have still not yet tried to move their crypto assets to the regular banking system.
Very few service suppliers exist in the sector, and this leads investors to operate in unregulated marketplaces, for example through Binance, one of the world’s largest crypto trading platforms, the study found.
Two weeks ago, Bank Leumi issued an announcement that it would allow customers of its Pepper online banking subsidiary to trade in digital currencies. It has been reported that Zero One, the new digital bank controlled by billionaire Prof. Amnon Shashua, one of the founders of Mobileye, was negotiating with Bits of Gold, a virtual currency trading platform, over setting up a digital wallet for the bank’s customers to carry out trading in crypto currencies.
Even though the crypto currency and other digital assets market was built to allow distributed finance that does not depend on middlemen, institutions and private investors around the world still provide centralized services for buying and storing digital currencies.
In recent years, these service providers have operated under the regulation of different countries. In Israel, there are very few regulated service providers in the sector – and they offer only a small number of digital currencies for trading. This has led Israeli investors to buy digital currencies through unregulated international marketplaces, or from private individuals – and only a small number of them operate through regulated Israeli institutions, TASC found.
This situation has caused two main problems: The first is fraud and theft when carrying out transactions, and the second is that the Israeli banking system will not accept funds whose source is from trading on these unregulated international crypto marketplaces.
Tal Bar, a partner at TASC, said that for small investments, there is a chance of the investors being able to bring the funds back into the regular banking system – but it could be a challenge and they as well as those with much larger investments might decide to take a risk and go through unsupervised bodies.
“If a decade ago, the digital assets market looked like a gimmick, [today] more decision makers understand the sector is here to stay, and we see that regulatory processes are beginning in the world that are meant to allow it to develop without threatening the traditional financial system,” said Bar.
The scope of trade in digital currencies, in Israel and around the world, is still relatively small compared to the traditional currency markets – but the understanding is spreading that it is impossible for it to remain as a marginal issue, Bar said. Crypto gives financial institutions the opportunity to diversify their activities and revenues – if the sector becomes regulated, said Bar: “The government has made a few steps on the issue, but needs to regulate it fully.”
The business opportunity in this sector comes from its rapid growth, and because it does not have entrenched local players – while the problems could stem from a lack of regulatory certainty and a lack of support from the banking system.
At the end of December, the Bank of Israel’s plans for how the banks are to handle crypto currency profits were revealed for the first time. A draft version of the new regulations from the Supervisor of Banks said that as long as the source of the money was an institution with a license, the banks could not refuse to accept the funds just because the source was from crypto.