Bitcoin is an asset, not a currency: Israel’s central bank

JERUSALEM (Reuters): Israel’s central bank said on Monday it would not recognise virtual currencies such as bitcoin as actual currency and that it was difficult to devise regulations to monitor the risks of such aactivity to the country’s banks and their clients.

Deputy Governor Nadine Baudot-Trajtenberg said there had been public complaints Israeli banks were making it difficult for some customers to transfer money from their accounts to buy bitcoin. But this was something the central bank would not be able to address. Other central banks faced the same problem.

“The Bank of Israel’s position is that they should be viewed as a financial asset,” Baudot-Trajtenberg told a meeting of Israel’s parliamentary finance committee, noting that there was no government responsibility for investors in bitcoin.

The central bank, Baudot-Trajtenberg said, was studying the issue of virtual currency but not much could be learned from what exists globally since no regulator anywhere in the world had issued guidelines to the banking system on how to act in relation to customers’ activity in virtual currencies.

“There is a real difficulty in issuing sweeping guidelines to the system regarding the proper way to estimate, manage, and monitor the risks inherent in such activity,” she said. “Beyond the risks to the customer there are also compliance risks to the bank.”

The value of a bitcoin, the biggest and best-known cryptocurrency, surged in mid-December to nearly $20,000, then dropped to less than $12,000 at the end of the month. It was trading on Monday around $15,370.

Anonymous nature

Bitcoin is a publicly available ledger of a finite number of digital “coins”, which backers say can be used as a currency without the support of any country’s central bank. It is “mined” by computers, which are awarded new coins for working out complex mathematical formulas.

Several other cryptocurrencies have been launched that work on similar principles.

Committee members during the meeting on bitcoin and other cryptocurrencies urged Israel’s regulators to quickly come up with regulations.

“There seems to be a greater possibility that they will become central to our financial lives,” said Moshe Gafni, the chairman of the panel.

He called on regulators to submit to the committee within a month how they tend to deal with bitcoin and the like.

Still, Israel’s regulators are generally opposed to giving credence to virtual currencies since they are based on private initiatives and they do not have the same level of investor confidence as regular currencies.

“The anonymous nature of virtual currencies leads to the possibility that they may be used to launder money, finance crime, and so forth,” Baudot-Trajenberg said.

Shlomit Wagman, head of Israel’s anti-money-laundering authority said a thorough investigation was needed since terrorist organisations use virtual currency platforms.

Last week, Israel’s markets regulator proposed regulations that would ban from trading on the Tel Aviv Stock Exchange companies whose main business revolves around bitcoin and other cryptocurrencies.

Fund managers say bitcoin ETF proposals withdrawn due to SEC concern

NEW YORK (Reuters): Two US companies shelved proposals to launch bitcoin exchange-traded funds, citing ongoing concerns by the Securities and Exchange Commission (SEC), filings showed on Monday.

Staff at the regulatory agency “expressed concerns regarding the liquidity and valuation” of futures contracts based on the digital asset, according to one of the filings.

The move adds a new hurdle to the bid by Wall Street firms to capitalise on investor interest in cryptocurrencies, and it opens a rare public divergence between two financial regulatory agencies over how to regulate them.

Trusts controlled by Rafferty Asset Management LLC and Exchange Traded Concepts LLC each cancelled plans to launch three bitcoin funds that could be traded by retail investors as easily as stocks. Neither firm could be reached for comment. Fund managers thought the proposals had a chance at winning approval given the launch last month of futures contracts based on bitcoin on both the CME and the CBOE exchanges.

Regulators have been scrambling to figure out how to deal with this relatively new asset, and no single one has control.

The SEC has dominion over funds, while the Commodity Futures Trading Commission (CFTC) governs futures contracts. The CFTC has been under pressure to address concerns it did not fully assess the potential risks that bitcoin poses to the financial system.