The Knesset Finance Committee on Monday morning held its first debate ever on the virtual currency Bitcoin, with MKs demanding that state economic regulation officials expedite the policy work on Bitcoin, so that Israel does not lag behind in this matter.
Finance Committee Chairman MK Moshe Gafni (United Torah Judaism) said, “There may be great economic potential here. In any case, the train is already out of the station and a quick process is needed to issue a policy.”
All the economic regulators in the debate agreed that the Bitcoin offers a great potential, but stressed the need for stability, to ensure that citizens and investors are protected and to avoid money laundering schemes. For the time being, the regulators agreed that, until further notice, the Bitcoin will be defined as a “financial asset” and not as currency, and will therefore be taxed on capital gains if its value rises and as a capital loss if its value declines.
Bitcoin— invented and released by an unknown person in 2009, is the first decentralized digital currency, is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, control creating new units, and verify the transfer of assets. It works without a central bank or administrator. Instead, the Bitcoin network is peer-to-peer and transactions take place between users directly, without an intermediary, verified by network nodes through the use of cryptography and recorded in a public distributed ledger called a blockchain.
Opposition Chairman MK Isaac Herzog (Zionist camp), who initiated the debate in the Finance Committee, said that “one thing is clear: we must move toward certainty in Israel’s economy in this matter among investors, entrepreneurs and citizens in general. Israel is a country rich in technology and with an advanced economy, and we cannot stay behind in this matter.”
Herzog added: “There is a huge drama in the Blockchain technology, which sells and buys beyond the scope government authorities, beyond the state, in a fascinating manner that can have a far-reaching impact on global commercial reality.”
Nadine Baudot Trajtenberg, Deputy Governor of the Bank of Israel, said that a major problem “is the anonymity of Bitcoin and other digital currencies, at a time when banks are withdrawing from the use of cash. The element of anonymity annuls international rules on money laundering, because it cannot be supervised.”
“Banks have sometimes approved funding that later turned out to be a financing of terrorism, and then they faced real problems from US law enforcement agencies,” Trajtenberg warned, suggesting the committee be careful. She also said that currently no regulation authority in any country has issued clear guidelines for states’ dealing with Bitcoin.
“We have a team that continues to look for a solution and when it is found, it will have to be in cooperation with all the other parties,” the deputy governor told the committee.
Chairman of the Securities Authority, Prof. Shmuel Hauser, shared with the committee his concerns regarding Bitcoin’s instabily. “A few months ago it was worth $200, then $20,000, then it dropped to $12,000 and now it’s up again at $15,000 – and I’m not sure I understand what causes these price changes. The answer ‘demand’ is insufficient. There has to be something more behind it.”
Hauser also pointed to the risk of scams. “There are ads calling on citizens to invest in Bitcoin as an alternative to investing in banks with their small time tellers,” he said, stressing that “the most important thing investors must know is that there is someone who protects them. Today, buyers don’t know what would happen in case of a fraud, who protects them. There must be a suitable regulatory framework.”
“Before allowing such companies to be traded on the stock exchange,” Hauser recommended, “the Securities Authority should create within the next two years a committee to issue recommendations on digital currencies.”
Committee Chairman Gafni closed the meeting with a call on all the regulators to “submit to the Finance Committee within a month and a half a report on the steps they intend to recommend in relation to Bitcoin and digital currencies in general.”
“We’re leaving here worried because we’ve heard a kind of stutter here [from the experts],” Gafni rebuked the committee’s guests, telling them that his committee “will monitor what the government is doing and will hold another discussion to see where we have progressed.”
When the committee reconvenes, Gafni warned, “Don’t settle for hifalutin words and don’t tell us it’s not a coin. In a month and a half I want you to report to me what you have really done on this subject.”