Israel’s Securities Regulator Sees Potential in Cryptocurrency Trading and Security Token Offerings

The Israel Securities Authority (ISA), the market regulator in the Middle Eastern country, recommends the creation of a cryptocurrency trading platform under enhanced regulation, as reported by Reuters on March 6.

The regulator believes that the new platform will allow companies to raise capital by selling their digital tokens to investors.

The recommendation comes from the agency’s committee that has been studying the crypto sector for almost two years.

Room for Growth

The recommendation is an indication that governments and regulatory agencies around the world are slowly beginning to see the potential of the industry and blockchain technology.

Anat Guetta, who was appointed ISA chair in January last year believes that blockchain, the technology that underpins digital assets is valuable although the hype that surrounded the field in the past few years has subsided.

“The excitement that defined the field in 2017 has cooled off, but the technology is here to stay,” said Guetta.

The recommendation also comes after the number of traded companies and the capital raised in the country have declined over the last decade, pushing the market regulator to look for new innovative ways to attract investors and inject more capital in initial public offerings.

Guetta believes that technological innovation has an important role to play in increasing competition in the capital market, but there have to be some tradeoffs. This means that the agency has to find the sweet spot – the ability to protect investors without stifling innovation.

The committee also suggested applying customized securities laws to cryptocurrencies so that startups issuing digital tokens can include disclosure agreements.

The committee did not indicate when it expects to give the final decision. It also highlighted that other exchanges in London and Australia are considering similar options.

If the country goes on to pursue this recommendation, it could trigger an arms race for other countries in the world to rule in favor of security token offerings (STOs).

STOs will likely succeed where as initial coin offerings (ICOs) hit a brick wall due to regulatory compliance.

Evolving Crypto Space

The current bear market may have calmed the prices down, but it has also led to several governments and regulatory agencies taking a more pro-active approach in regulating the emerging market.

In 2017, the former chair of ISA Shmuel Hauser said that the regulatory agency was considering banning crypto firms from the Tel-Aviv Stock Exchange.

“We will also consider not to allow trading in ‘backdoor costumes’ of bitcoins or alike,” said Hauser, a Professor of Finance and economist who served as the chair of ISA between 2011 and 2018.

Many governments are now viewing cryptocurrencies from a different angle and are even thinking of benefiting from them.

The Argentinian government is also set to invest in early-stage cryptocurrency projects backed by Binance Labs, the venture arm of the cryptocurrency exchange Binance.