Israël

Disclaimer: The regulatory information provided below is for general informational purposes only and may not reflect the most current legal developments. Cryptocurrency regulations are rapidly evolving and can change frequently. This information should not be considered legal or tax advice. Before making any business or investment decisions, please consult with qualified legal, tax, or financial professionals familiar with your specific jurisdiction and circumstances. Always verify current regulations with official government sources and regulatory bodies.

Legal Classification & Regulatory Framework

Cryptocurrency Status

Cryptocurrency is legal in Israel, though the country does not recognize it as legal tender or currency. Instead, the Israeli government classifies cryptocurrencies as “financial assets” under the Supervision of Financial Services (Regulated Financial Services) Law, enacted in 2016. This classification places virtual currencies alongside other regulated financial instruments and establishes the framework for their oversight.

The Israel Tax Authority (ITA) further clarified this position through Circular 5/2018, which officially designated virtual currencies as “assets” rather than currency. This distinction has significant implications for how cryptocurrency transactions are treated from both regulatory and tax perspectives. From the government’s standpoint, cryptocurrency is primarily viewed as a financial investment instrument rather than an acceptable means of payment for everyday transactions.

Israel’s regulatory approach also distinguishes between different types of tokens. The Israel Securities Authority (ISA) has established three subcategories: currency tokens (used as a means of payment), security tokens (which confer ownership or membership participation rights), and utility tokens (which provide access to specific services or products). This framework helps determine whether a particular token falls under securities regulations or other financial services oversight.

Tax Treatment

The Israeli tax framework treats cryptocurrency transactions as taxable events involving capital assets. Any profit realized from the sale, exchange, or disposal of cryptocurrency—including swapping one cryptocurrency for another—is subject to capital gains tax. For individual investors, this tax rate is generally around 25%, though rates can vary depending on specific circumstances.

If cryptocurrency trading activity is deemed to constitute a business operation rather than personal investment, the profits may be subject to income tax rates instead, which can reach up to 50% depending on the taxpayer’s overall income bracket. Mining activities are treated distinctly: individuals engaged in cryptocurrency mining are classified as “dealers” and may be subject to value-added tax (VAT), while business-related mining operations may face the additional 17% “profit tax” applied to financial institutions.

The Ministry of Finance and the Israel Tax Authority have been working to formalize and codify the tax treatment of digital assets through new legislation. Draft proposals explicitly define “digital assets” in the Income Tax Ordinance and aim to provide greater certainty for investors and businesses while strengthening the government’s ability to enforce compliance and collect tax revenues from the crypto sector.

Regulatory Oversight

Israel employs a multi-agency approach to cryptocurrency regulation, with several government bodies sharing oversight responsibilities:

Capital Market, Insurance and Savings Authority (CMA or CMISA) serves as the primary licensing body for cryptocurrency service providers. The CMA oversees exchanges, brokers, custodians, and wallet providers operating in Israel. Under the Financial Services Law, any entity wishing to provide services related to virtual currencies must obtain a license from this authority.

Israel Securities Authority (ISA) oversees public offerings of cryptocurrencies and determines whether digital tokens qualify as securities subject to Israeli securities law. The ISA has been actively pushing for legislative amendments to define and regulate “digital assets” and “digital investment assets” more comprehensively. The authority also regulates the Tel Aviv Stock Exchange, which now permits certain cryptocurrency-related activities through licensed intermediaries.

Bank of Israel (BOI) issues directives to financial institutions regarding cryptocurrency-derived funds and assesses systemic risks that virtual currencies may pose to the financial system. The central bank is also leading research and development of a potential Central Bank Digital Currency (CBDC) known as the Digital Shekel, and has published principles for stablecoin regulation.

Israel Money Laundering and Terror Financing Prohibition Authority (IMPA) serves as Israel’s financial intelligence unit, enforcing anti-money laundering (AML) and counter-terrorist financing (CTF) regulations across the crypto sector. All cryptocurrency businesses must implement robust Know Your Customer (KYC) practices and report suspicious activities.

Israel Tax Authority (ITA) is responsible for issuing guidelines on capital gains taxation of cryptocurrencies and mandates reporting requirements for crypto transactions, including crypto-to-crypto exchanges.

Business Environment

Banking Relationships

Banking relationships have historically been one of the most significant challenges for cryptocurrency businesses and users in Israel. Traditional banks have maintained conservative policies regarding cryptocurrency-derived funds, often refusing to accept deposits or transfers connected to crypto activities due to concerns about money laundering, terrorism financing, and regulatory uncertainty.

To address this friction, the Bank of Israel issued Banking Management Directive 411, which specifically addresses risk management in services related to virtual assets. This directive prohibits banks from automatically refusing services for crypto-related transactions. Instead, banks must develop risk management policies that consider the type of cryptocurrency, its level of anonymity, the identity of the crypto service provider, and the customer’s activity profile.

For transactions exceeding 100,000 New Israeli Shekels (NIS), banks are required to investigate the source of funds and the movement of cryptocurrency assets. Despite these regulatory improvements, the practical implementation remains challenging. Most Israeli banks still limit their crypto-related services to a small number of well-known cryptocurrencies (typically Bitcoin, Ethereum, and USDC) and only accept funds from select international platforms and a handful of licensed Israeli companies.

The Israeli Supreme Court has ruled that banks are not prohibited from engaging in cryptocurrency transactions with the public, emphasizing the need for clearer legislative guidelines. Ongoing discussions between the Bank of Israel, licensed crypto firms, industry associations, and major commercial banks aim to further reduce unnecessary barriers while maintaining appropriate risk controls.

Licensing Requirements

Operating a cryptocurrency exchange, brokerage, custody service, or wallet provider in Israel requires a license from the Capital Market, Insurance and Savings Authority. The licensing framework was established in 2016, though the rigorous application process means that relatively few licenses have been granted. The first cryptocurrency license was issued in late 2022, and only a handful of additional licenses have been approved since then.

Licensing requirements include comprehensive documentation covering business plans, proof of adequate capital, IT and security policies, details of directors and key personnel, and comprehensive compliance handbooks. Applicants must demonstrate robust AML/KYC frameworks, cybersecurity readiness, and financial stability. Licensed entities are subject to ongoing supervision, regular inspections, and reporting obligations.

Companies that have applied for licenses but not yet received approval may continue operations under a temporary permit while their applications are processed. This transitional arrangement allows the market to function while the regulatory infrastructure develops, though it creates some uncertainty for businesses awaiting final decisions.

The Israel Securities Authority has approved a significant amendment allowing non-bank members of the Tel Aviv Stock Exchange—such as brokerage and investment firms—to offer cryptocurrency trading and custody services to their clients. This “closed garden” approach initially covers Bitcoin and Ethereum, with all transactions required to route through licensed crypto exchanges or custody providers.

Innovation Support

Israel has earned its reputation as the “Start-Up Nation” through a robust innovation ecosystem, and the blockchain and cryptocurrency sector has benefited from this environment despite regulatory challenges. The country hosts hundreds of fintech companies, with dozens specifically focused on blockchain, cryptocurrency infrastructure, cybersecurity, and decentralized finance applications.

Israeli authorities have established regulatory sandbox initiatives to support fintech innovation. The Israel Securities Authority and Israel Innovation Authority have jointly tested regulatory relief programs for blockchain projects, regulatory technology (regtech), robo-advisory services, and tokenized assets. The Data Sandbox program, run in collaboration with the Tel Aviv Stock Exchange and supported by the Ministry of Finance, aims to support companies meeting real-world industry needs.

The Bank of Israel has launched the Digital Shekel Challenge, inviting various entities to connect to an experimental CBDC environment and develop innovative payment solutions. This initiative demonstrates the central bank’s interest in fostering technological advancement while maintaining appropriate oversight. Pilot programs, such as the BILS stablecoin project—a New Israeli Shekel-pegged stablecoin built on the Solana blockchain—operate under CMA supervision within regulatory sandbox frameworks.

Israel’s academic institutions also contribute significantly to blockchain research and development, with universities conducting cutting-edge work on scalability, security, and cryptographic innovations that attract both public and private investment.

Market Characteristics

Adoption Patterns

Israeli consumers have shown strong interest in cryptocurrency investment and trading, with adoption patterns reflecting the country’s generally tech-savvy population. Many Israeli users have embraced international trading platforms for digital asset transactions, particularly given the historical challenges in accessing crypto services through domestic financial institutions.

Institutional adoption has been more measured, constrained by regulatory uncertainty and banking sector conservatism. However, recent regulatory developments—including the Tel Aviv Stock Exchange framework for cryptocurrency trading through licensed intermediaries—are beginning to open channels for broader institutional participation. Some publicly traded Israeli companies have obtained cryptocurrency service licenses, signaling growing acceptance within the traditional financial ecosystem.

The crypto community in Israel has demonstrated notable cohesion and engagement with regulators. Industry associations, including the Israeli Bitcoin Association and the Israeli Crypto, Blockchain and Web 3.0 Companies Forum, have actively participated in policy discussions, provided feedback on proposed regulations, and advocated for balanced approaches that protect consumers while fostering innovation.

Industry Focus

Israel’s cryptocurrency and blockchain sector excels in several specialized areas that leverage the country’s broader technological strengths. Infrastructure and security solutions represent a particular concentration, with Israeli companies building institutional-grade custody platforms, key management systems, and secure transaction infrastructure. Major international players, including global cryptocurrency exchanges and payment processors, have acquired Israeli startups in these areas.

Zero-knowledge proof technology and Layer 2 scaling solutions have emerged as another area of Israeli leadership, with local companies developing breakthrough approaches to blockchain scalability and privacy. Cybersecurity expertise—a traditional Israeli strength—translates directly into blockchain security applications, fraud prevention systems, and compliance tools.

Payment orchestration and cross-border transaction processing represent significant areas of activity, with Israeli companies building platforms that automate routing, compliance, and real-time approvals for global financial flows. The fintech ecosystem more broadly—encompassing trading and investing, payments and money transfer, enterprise solutions, and anti-fraud/risk/compliance—provides a foundation from which many blockchain-specific applications have emerged.

Regulatory Evolution

Israel’s regulatory framework for cryptocurrency continues to evolve as authorities work to balance innovation support with consumer protection and financial stability. The current approach involves adapting existing financial services regulations to accommodate digital assets rather than creating an entirely new regulatory category.

Key legislative initiatives under development include proposals to formally define digital assets in the Income Tax Ordinance and potentially in securities law. These changes would codify what has largely been administrative guidance into explicit legal frameworks, providing greater certainty for market participants while strengthening enforcement capabilities.

The Bank of Israel’s work on stablecoin regulation principles—including requirements for full reserve backing, licensing, and oversight—indicates preparation for broader adoption of digital payment methods. The Digital Shekel project continues advancing, with the central bank publishing design documents and soliciting public feedback on potential CBDC implementation.

Unlike European Union member states, Israel is not directly subject to the Markets in Crypto-Assets Regulation (MiCA), though Israeli companies serving European customers must comply with those requirements. Israeli regulators monitor international developments and engage with global counterparts, incorporating relevant lessons into domestic policy while maintaining an approach suited to local market conditions and priorities.

The trajectory suggests continued regulatory maturation, with authorities working to provide clearer rules, improve banking sector cooperation, and establish sustainable frameworks that allow Israel’s vibrant blockchain ecosystem to thrive within appropriate boundaries.

For Current Information:

• Capital Market, Insurance and Savings Authority (CMA/CMISA)
• Israel Securities Authority (ISA)
• Bank of Israel
• Israel Money Laundering and Terror Financing Prohibition Authority (IMPA)
• Israel Tax Authority
• Bank of Israel – Digital Shekel CBDC