Israel Securities Authority bans cryptocurrency companies from TASE indices

Israel Securities Authority bans cryptocurrency companies from TASE indices

Ruling says digital assets and the companies behind them are too volatile to be sold to passive investors, but can be traded on the stock exchange

Simona Weinglass is an investigative reporter at The Times of Israel.

Illustrative image of the Tel Aviv Stock Exchange, on March 14, 2017. (Roy Alima/Flash90)
Illustrative image of the Tel Aviv Stock Exchange, on March 14, 2017. (Roy Alima/Flash90)

The Israel Securities Authority announced Tuesday that it would exclude cryptocurrency companies from indices of the Tel Aviv Stock Exchange but not from the bourse itself, adopting one of two proposed rules suggested by former ISA chairman Shmuel Hauser.

“We have decided to prevent the exposure of passive investors to companies whose main activity involves cryptocurrencies. Investment in these companies is high risk, speculative and volatile. We also published a detailed warning to investors about the dangers of investing in cryptocurrency,” newly appointed ISA chairwoman Anat Guetta said in a press release.

The decision, while expected, came as a second blow to Israel’s fledgling cryptocurrency industry on a day when Google announced it would soon ban all ads for cryptocurrencies and initial coin offerings.

The ISA further stated that the rule would be in effect for a year, after which it would be re-evaluated. Its purpose, the ISA said, is to prevent passive investors, who are invested in mutual funds and ETFs from being exposed to companies involved in the fledgling cryptocurrency sector, which is notoriously volatile.

For instance the price of Bitcoin rose from $900 in late December 2016 to over $20,000 in December 2017, then began to drop and as of this writing is at about $8,300, having lost close to 9 percent of its value since the beginning of the day.

View of the Bitcoin Change center on Dizengoff Street in Tel Aviv, showcasing a museum describing the history of the cryptocurrency as well as hosting a Bitcoin ATM and a meeting place for cryptocurrency community meetups. November 05, 2017. (Miriam Alster/FLASH90)

“We will exclude companies whose main activity is holding, investment or mining of cryptocurrencies from being part of the indices,” stated the press release.

“The extreme volatility that characterizes cryptocurrencies can also be seen in companies whose value goes sharply up and down, often for no discernible reason. This volatility could lead to a situation where such companies meet the threshold standards to join the indices. However, if these companies were part of the indices, mutual funds and ETFs would be compelled to purchase their shares and thereby expose passive investors to volatility and the potential for significant losses.”

At the beginning of January the ISA had opened a four-week comment period asking for comments on two possible rules: the first was excluding cryptocurrency companies from indices and the second would have prevented cryptocurrency firms from registering with the TASE altogether unless they had equity of at least 100 million shekels (some $28 million) and at least 36 months worth of audited financial reports.

After studying the comments, the ISA said, it decided to implement the first proposed rule but not the second.

The decision to keep cryptocurrency firms out of TASE indices is separate from the ISA’s much-anticipated decision on how to regulate cryptocurrencies, which will be published in the coming days, the government agency said. The ISA also published a warning to investors on Wednesday concerning the many risks involved in investing in cryptocurrencies and initial coin offerings, from losing all ones money to becoming a victim of fraud.

Bitcoin (AFP Photo/Karen Bleier)

In response to the ISA’s decision and warnings, Meni Rosenfeld, chairman of the Israeli Bitcoin Association issued a press release.

“There are indeed a number of risks associated with investments in digital coins, which one must consider in order to make an informed decision. Investing in this area is not for everyone, but only for those who understand the potential as well as the dangers.”

Nevertheless, Rosenfeld said he hopes Israel does not throw out the baby with the bathwater.

“Distributed digital coins like Bitcoin are of immense technological promise and a significant growth engine for Israeli high tech, and we must not let negative factors and warnings suffocate the innovation and allow Israel to be left behind.”

read more: