Israeli regulator warns investors of cryptocurrency risks

Anat Guetta  photo: Tamar Matsafi

The Israel Securities Authority has decided to exclude cryptocurrency companies from Tel Aviv Stock Exchange indices.

The Israel Securities Authority (ISA) yesterday announced that cryptocurrency companies would not be included in the Tel Aviv Stock Exchange (TASE) indices. The ISA explained that its measure was separate from the recommendations of an interim report by the committee for examining initial coin offerings (ICOs) to the public, which will be published in the coming days. The ISA's decision follows a proposal published in early January to amend TASE rules concerning the activity of companies in this sector.

At the same time, the ISA also published a detailed warning for investors considering investment in cryptocurrencies. The warning states, "Such investment incurs many exceptional risks, including an absence of liquidity and ability to convert the currencies to money, exceptional price volatility, illegal activity, and risk of fraud."

The ISA's warning adds, "An investor choosing to put his or her money, directly or indirectly, in a cryptocurrency investment instrument faces a high probability that one or more of these risks will materialize, resulting in the loss of his or her money."

Securities Authority chairperson Anat Guetta said yesterday, "We have decided to prevent the exposure of passive investors to companies whose main activity is in cryptocurrencies. Investment in these companies is speculative, volatile, and features a high level of risk. We also published a detailed warning today about investment in cryptocurrencies, so that investors considering this option will be aware of the many risks it involves."

The Securities Authority's announcement said that it would "act to temporarily review TASE regulations in order to restrict the entry in the TASE indices of companies whose main activity is holding, investing, or mining of decentralized cryptocurrencies (bitcoin, Ether, and others). The purpose of the amendment is to prevent public companies operating in this risky and speculative sector, which features very volatile trading, from entering the TASE indices, which would result in their inclusion in passive investors' investment portfolios. The amendment will be for one year, after which it will be reassessed according to market developments."

In response to the TASE's announcement, Israel Bitcoin Association chairperson Meni Rosenfeld said, "There are indeed several risks in investing in digital currencies, and people should take them into account in order to make wise decisions. Investing in this sector is not suitable for everyone; it is only for those who understand both the potential and the risks. It is also important to distinguish between decentralized currencies and tokens issued centrally in an ICO process, in which the risks are even greater, as we have previously warned. In any case, the baby should not be thrown out with the bathwater - currencies like bitcoin hold out  huge technological promise and are a significant growth engine for Israeli high tech, and negative parties and warnings must not be allowed to throttle innovation and leave Israel lagging behind."

The ISA noted that its stance "follows exceptional trading in the securities of companies on the TASE that have announced in recent months their intention of doing business in the cryptocurrencies sector. In some cases, the companies' reports led to a steep rise in their share prices, even before they had any real activity with results that could be evaluated. The extreme volatility characteristic of cryptocurrency trading is also reflected in trading in these companies, whose value rises and falls sharply, sometimes for no apparent reason. This volatility is likely to lead to a situation in which companies with a high level of risk meet the threshold conditions for inclusion in indices solely as a result of exceptional trading, even before they have any business activity whose results can be evaluated."

The ISA continued, "Including companies in the cryptocurrencies sector in the TASE indices would mean that mutual funds and issuers of index-linked certificates would be forced to buy these companies' shares, indirectly exposing passive investors to trading in them, the sudden changes in their value, and significant potential loss."

Published by Globes [online], Israel Business News - www.globes-online.com - on March 15, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Anat Guetta  photo: Tamar Matsafi
Anat Guetta photo: Tamar Matsafi
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