Firms whose value is based on bitcoin value banned from TASE

Top financial regulator calls for keeping bitcoin off Tel Aviv Stock Exchange

Cryptocurrency-linked stocks tumble after Israel Securities Authority chief Shmuel Hauser tells tech funding conference, ‘It looks like a bubble and behaves like a bubble’

Chairman of Israel Securities Authority Shmuel Hauser attends a conference in Jerusalem on June 19, 2017. (Yossi Zeliger/Flash90)
Chairman of Israel Securities Authority Shmuel Hauser attends a conference in Jerusalem on June 19, 2017. (Yossi Zeliger/Flash90)

Israel’s top financial regulator on Tuesday called on the Tel Aviv Stock Exchange to consider banning companies tied to bitcoin or other cryptocurrencies from listing on the Tel Aviv Stock Exchange until a proper regulatory process is in place for dealing with these kind of companies.

Israel Securities Authority chief Shmuel Hauser said in a letter to Ittai Ben Zeev, the CEO of the TASE, that these companies should also be banned from entering the exchange via a “back door,” or through the activities of an existing company that is already listed on the exchange.

In his letter, Hauser called on Ben Zeev to take immediate steps to halt the entry of these bitcoin-based companies into the TASE indices. In parallel, he said, the ISA will work on a regulatory framework that will consider how they have to report activities to the regulators and investors, how money laundering concerns should be addressed and how their valuations should work, taking into account the fact that the bitcoin is a highly volatile currency.

Hauser’s letter to the TASE CEO came after the regulator delivered comments this morning saying he would not allow companies whose values are based on bitcoin values, like Natural Resources Holdings (Mashabei Teva), to be included in the TASE indices.

“I would like to emphasize that we will not allow companies whose value is based on bitcoin’s value, such as [the bitcoin trading firm] Mashabei Teva, to be included in TASE indices. We will also consider not allowing trading in ‘back-door’ [attempts to trade surreptitiously in] bitcoins or the like until we find a suitable regulatory framework for such instruments.”

Hauser’s morning comments, delivered at approximately 11:30 a.m. local time in Tel Aviv, sent the stock values of several Israeli cryptocurrency firms currently trading on the stock exchange plummeting.

The shares of Natural Resources Holdings surged over 9,000% in the last two months, after the company said in October it was considering entering into cryptocurrencies. Its market value reached almost NIS 1 billion, which would make the stock eligible to enter into the small cap indices of the stock exchange and enable it to automatically draw demand from investment funds that track the indices.

Natural Resources shares plunged more than 40 percent on Hauser’s comments on Tuesday.

Once companies reach a certain market valuation they automatically enter the benchmark indices in the stock exchange. Most investors, including the institutional investors who manage our savings and pensions funds, invest in these indices, and thus the portfolios of most Israeli investors would have had these stock included in their investment basket.

“Hauser’s move is an important one as it saves household investors from investing in these highly speculative kind of shares,” said Yaniv Pagot, an economist and head of strategy for the Ayalon Group, an Israeli institutional investor.

Hauser spoke to a conference on high-tech funding organized by the government’s Innovation Authority at the Tel Aviv exchange.

He noted that the “market value of all digital currencies grew in 2017 from about $18 billion to about $300 billion.”

This massive growth in a “digital payment method whose value seems to be out of control…calls for action,” he said.

Another company also currently trading on the exchange, Fantasy Network Ltd., saw its value fluctuate so rapidly that the exchange halted trading in its stock. The share was trading almost 22 percent lower at 4 p.m. in Tel Aviv.

In his comments at the exchange, Hauser pointed to the difficulties regulators face in handling cryptocurrencies.

“There isn’t any information on supply and demand, and whether anyone is in control of that supply and demand,” he noted. “It looks like a bubble and behaves like a bubble, as there is no way to explain the price increase from $2,000 to $11,000 within a few months and then a sudden drop of 20% within a day, and another increase to $14,000 within a few more days. That does not mean that bitcoins or their kind are not to be considered [for investment], but it does mean that it should be examined at the national level by all regulators.”

Hauser has expressed misgivings about cryptocurrencies in the past, telling The Times of Israel in November that he was “very troubled” by the possibility that binary options fraudsters were entering the field and may be seeking to perpetrate the next big scam.

“We’re very concerned about initial coin offerings and cryptocurrencies,” Hauser said in that interview. “We don’t want this to become the next mutation of binary options or a haven for fraudsters.”

Simona Weinglass contributed to this report.

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