Introduction

Israel’s blockchain and cryptocurrency sector is vibrant and growing, true to the country’s “Start-Up Nation” reputation. In the past year, the industry has seen significant legal and regulatory shifts alongside technological innovation. Regulators and policymakers in Israel are gradually providing more clarity on digital assets, while local start-ups and financial institutions experiment with blockchain solutions.

Regulatory and Public Sector Developments

Slow but steady regulatory progress

Historically, Israel’s regulatory framework for crypto has lagged behind its entrepreneurial activity. There is still no single comprehensive law dedicated to cryptocurrency. Instead, cryptocurrency was included in a law in 2016 regulating a list of financial services supervised by the Israeli Capital Market, Insurance and Savings Authority (CMA) which classified “virtual currency” as a financial asset. This legislation opened the door for the CMA as well as other regulators such as the Israeli Money Laundering and Terror Financing Prohibition Authority (IMLA), the Bank of Israel (BOI), the Israeli Securities Authority (ISA) and the Israeli Tax Authority (ITA) to issue orders and instructions regarding crypto-assets.

Over the last couple of years, authorities have continued their ongoing efforts to clarify how digital assets fit into Israel’s financial laws. For example, the ISA has proposed amendments to the Israeli Securities Law, which will bring many digital assets under its supervision, defining tokens by categories (such as security tokens v utility tokens) and applying tests similar to the US Howey Test to determine if a token is a security. While these are still proposals, they signal that token offerings in Israel should follow securities regulations if they function as investments.

Government action and crypto legislation

A State Comptroller’s report released in late 2024, which sharply criticised the Israeli tax authority for inadequately capturing crypto-related revenue. The report estimated Israel missed out on 2–3 billion shekels annually from 2018–2022 due to poor tax enforcement and lack of clarity in the crypto market – with a tiny minority of estimated crypto holders reporting their gains. In response to such findings, the Ministry of Finance and ITA introduced draft legislation in November 2024 to explicitly define “digital assets” in the Income Tax Ordinance. Once enacted, this legislation will solidify that cryptocurrencies are taxable assets usually subject to capital gains tax. This kind of legislative move, while still missing important nuances, is another step that demonstrates the public sector’s commitment to catching up with the fast-paced crypto industry.

Israel Securities Authority

In August 2024 the ISA approved a significant amendment to allow cryptocurrency trading within Israel’s traditional capital markets framework. Specifically, it allowed non-bank members of the Tel Aviv Stock Exchange (TASE) – such as brokerage and investment firms – to offer cryptocurrency trading and custody services to their clients. This is often described as a “closed garden” approach: customers will be able to buy, sell and hold approved cryptocurrencies (initially limited to Bitcoin and Ethereum) through their regulated investment account providers. All crypto transactions under this model must be routed through licensed crypto exchanges or custody providers, adding layers of oversight. Although this new framework was approved, it will take time for TASE members to roll out services. It exemplifies the Israeli public sector’s recent trend: cautiously opening the door for crypto within traditional financial systems.

Following the sale of foreign crypto-related ETFs by Israeli financial institutions, earlier this year the TASE published a draft proposal for public comment, proposing new guidelines that would allow the listing of ETFs based on a variety of digital assets.

Central Bank and digital currency efforts

The BOI (Israel’s central bank) has a long-standing and substantive Central Bank Digital Currency (CBDC) think group which has been experimenting for a few years extensively, alone and in co-operation with other central banks regarding the issuance of a “digital shekel”. The BOI has been very open and published several reports describing its progress on this issue and inviting other local and international actors to join the experimental process and try different use cases. While no decision to issue a CBDC has been made yet, officials have highlighted its potential to spur innovation and competition in payments. The central bank is also carefully watching stablecoins (such as BILS – a privately issued digital currency pegged to assets like the shekel and regulated by the CMA). In early 2023, it released principles for stablecoin regulation – suggesting that issuers be required to hold full reserves, be licensed (with systemically important stablecoins possibly regulated directly by the central bank and not the CMA), and face oversight to ensure redemption and reliability. These principles haven’t yet become law, but they indicate a framework that could be adopted to safely allow shekel-pegged stablecoins in the market.

Banking and Payments Integration

Banks’ stance on crypto eases (slightly)

A major pain point in Israel’s crypto scene has been the local banks’ historically tough stance toward cryptocurrency transactions. For years, Israeli banks often refused to accept deposits or transfers that were linked to crypto trading, citing anti-money laundering (AML) fears. This made it hard for individuals and companies to “cash out” crypto profits or even pay taxes on them. In recent years the BOI has taken steps to soften this stance. Directive 411, the main directive guiding AML risk monitoring for Israeli banks, requires them to take a risk-based approach and does not allow blanket refusals; banks must perform due diligence on crypto-related funds and allow transfers if the source is a licensed virtual asset service provider and the customer’s activities check out. This directive aimed to strike a balance between preventing illicit finance and enabling legitimate crypto users to access banking. However, the commercial banks have given the Directive very conservative interpretation, and crypto-related transactions are still very often turned away.

During the past year, extensive discussions between the BOI, leading licensed crypto brokers and exchanges, the Israeli Crypto, Blockchain and Web 3.0 Companies Forum (“Crypto Companies Forum”), the Israeli Bitcoin Association, other leading blockchain actors and all the major commercial banks are held regularly in order to further the understanding of the challenges involved in banking-elated difficulties in crypto, and the mitigating steps that may be taken to remove unnecessary roadblocks. This will hopefully lead to an updated directive that will advance the commercial banks’ ability to provide services to crypto-related transactions.

Payment reforms and digital finance innovation

The intersection of payments and crypto is also evolving. Israel’s regulators are aware that private cryptocurrencies and foreign digital payment services are gaining traction, so they want to ensure the domestic payment system is not left behind. Aside from exploring a central bank digital currency, the BOI is modernising regulations around electronic payments and considering how to accommodate crypto payment processors. One notable development was the ITA’s pilot programme launched in early 2024 to accept tax payments in cryptocurrency. This innovative (if temporary) measure was meant to solve a practical problem: Many traders owed taxes on crypto gains but couldn’t pay easily because banks blocked their funds. Under the pilot, taxpayers who could prove a local bank refused to accept their crypto proceeds were allowed to pay the tax due by sending cryptocurrency or foreign bank transfers directly to a government account. This six-month pilot, while well-intentioned, had limited uptake – highlighting that a more permanent solution involving co-operation from local banks is needed. Nonetheless, it was a creative workaround by authorities to ensure the government can collect what it is owed without waiting for every bank to come on board. It also signalled to banks that if they don’t facilitate tax payments from crypto, the government will find alternative routes.

Taxation and Compliance Updates

Clarifying tax treatment of digital assets

In Israel, cryptocurrencies have generally been treated as assets (not currency) for tax purposes. This means that selling, exchanging or otherwise disposing of crypto is typically a taxable event, subject to capital gains tax (usually 25% for individuals). Over the last few years, the ITA has issued circulars confirming, for instance, that trading one crypto for another still triggers tax (as it is akin to selling one asset for another). However, until recently these were administrative positions, not explicitly written into law. The draft legislation introduced in late 2024 aims to codify the tax treatment of digital assets in the tax code itself. By explicitly defining crypto-assets and their taxable events in the Income Tax Ordinance, the government hopes to remove any doubt or debate about tax obligations. This move should provide more certainty to investors and businesses. It also arms the ITA with clearer legal grounds to enforce compliance.

Compliance and licensing regimes

So far, the CMA had licensed only a handful of crypto firms. The slow pace of licensing reflects the cautious approach of regulators. For the industry, however, these licences are a positive development. They create an initial cohort of regulated crypto companies in Israel, some of whom have been active for over a decade, that can serve customers with the blessing and supervision of the law. This encourages more mainstream adoption and partnerships. For example, Bits of Gold, the 12-year-old crypto broker, forged agreements with one of Israel’s major credit card companies for a cashback plan to its customers, as well as an agreement with a major car importer to allow car purchases via crypto.

In summary, Israel’s compliance framework is maturing: the rules are mostly in place, a licensing regime exists, and now it’s about implementation and enforcement to channel crypto activity into accountable, functioning and user-friendly channels.

AML and security enforcement

Israeli regulators and law enforcement have been active on the AML front, especially given regional security concerns. Crypto companies in Israel are subject to the same AML laws as traditional financial institutions with some special additional crypto-related orders. This means exchanges must verify customers, monitor transactions, report suspicious activity, and so on.

Authorities in Israel have also shown growing capabilities for monitoring and seizing crypto-assets associated with criminal or terror-related activities.

Private Sector Growth and Innovation

Booming start-up ecosystem

Despite regulatory and banking relation hurdles, Israel’s private sector has been very active in blockchain and crypto. There are well over a hundred Israeli start-ups and companies in this space, spanning sub-sectors like cybersecurity for blockchain, decentralised finance (DeFi) platforms, crypto trading algorithms and infrastructure. According to the Israeli Crypto, Blockchain and Web 3.0 Companies Forum, approximately 3,300 Israelis were employed in blockchain-related jobs as of 2024, reflecting a substantial talent pool. Many Israeli-founded crypto companies are global leaders: for instance, Fireblocks (focused on crypto custody technology) and StarkWare (a pioneer in zero-knowledge rollup technology for Ethereum scaling) are both founded by Israelis, showcasing how local innovation has worldwide impact. However, these companies often base significant operations abroad or seek overseas markets early, partly because Israel’s internal market is small and regulations were (and still are) uncertain and slower than in other jurisdictions. The recent regulatory clarity might encourage more projects to remain rooted in Israel or at least engage with the local market under the new rules.

On the local front, the CMA enabled Bits of Gold to pilot the first shekel-pegged stablecoin (BILS), which is intended to play a part in cross-border and cross-currency interactions.

Industry associations and advocacy

The Israeli crypto community is tight-knit and has been proactive in advocacy and self-regulation. The Israeli Bitcoin Association and other industry groups have frequently engaged with regulators, providing feedback on proposed laws and pushing for reasonable policies. They played a role in lobbying for the banking directives that prevent unfair discrimination against crypto users. These groups also help educate the public to prevent scams and encourage responsible innovation. Over the past year, community forums and conferences in Israel (like Blockchain Week events and fintech conferences in Tel Aviv) have resumed in full swing post-pandemic, facilitating dialogue between regulators and the private sector.

From a market perspective, Israeli crypto companies often serve customers globally and must navigate foreign regulations like Europe’s MiCA or US securities laws. In turn, international developments do influence Israel – for example, the fall of major crypto exchanges abroad or new EU standards prompt Israeli regulators to be vigilant and possibly adopt similar standards to keep Israel aligned with best practices. A concrete example is stablecoin regulation: as the EU and US discuss how to regulate stablecoins, the BOI’s early principles mirror many global recommendations (100% reserves, clear redemption rights, etc), indicating a harmonised approach might be on the horizon. This dynamic ensures that Israel’s crypto industry is intertwined with the global one – advancements or setbacks in one jurisdiction are felt in the other. The overall trend is positive: Israel is increasingly seen as a player in the blockchain arena, contributing innovation and participating in shaping international standards, rather than standing on the sidelines.

Outlook and Conclusion

Israel is transitioning from an environment of regulatory uncertainty to one of cautious acceptance and structured integration. In the coming 12 months, we expect to see concrete outcomes from the initiatives currently in motion. Regulators will likely finalise and possibly pass the new legislation defining digital assets for tax and maybe for securities law. Banks, guided by clearer rules and possibly an updated directive, are expected to be less limiting in crypto-related transactions.

For businesses entering Israel’s crypto sector, the trajectory is encouraging. There is growing legal clarity on what is permitted and how to comply. Entrepreneurs should be prepared to work within licensing regimes and follow strict compliance procedures, but the reward is access to a tech-savvy market and improving support from the financial system. Innovation continues to thrive, especially in areas like fintech, cybersecurity and blockchain development, where Israel has competitive advantages. The government and private sector seem to share a goal of turning Israel into a hub for blockchain innovation, provided it can be done safely and legally. One can anticipate more public-private pilots (perhaps a trial of the digital shekel in a limited environment, or further tokenisation of financial instruments) as Israel tests the waters before full-scale adoption.

In conclusion, Israel’s blockchain and crypto landscape in 2024–2025 is defined by convergence: the convergence of innovation with regulation. The public sector is actively catching up to support and supervise the flourishing private sector, and the industry is engaging with regulators to shape sensible rules. Challenges remain – such as ensuring banks fully cooperate, boosting tax compliance, clarity and accessibility, and passing the remaining legal reforms – but the direction is set. Israel is embracing the blockchain revolution in its own pragmatic way, aiming to harness the benefits of crypto technology while safeguarding against the risks. This balanced approach will likely make the Israeli market more attractive to international crypto businesses and investors, and it provides local start-ups a clearer runway to build and deploy new blockchain solutions. All signs point to a future where cryptocurrencies and tokenised assets become a normal part of Israel’s financial ecosystem, operating under a framework that protects consumers and encourages continued innovation. Businesses and individuals looking to enter the Israeli crypto space should feel confident that they can do so with increasing transparency and support, as Israel solidifies its role in the global digital assets arena.