ARTICLE
2 February 2021

Israeli Regulator Says Cryptocurrency Is A Security Subject To The Israeli Securities Law

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Pearl Cohen Zedek Latzer Baratz
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Pearl Cohen is an international law firm with offices in Israel, the United States, and the United Kingdom. Our strength is derived from decades of legal experience and an intimate knowledge of the cutting edge technological, legal, and transactional issues facing our clients in local and cross border matters. This combination of experience and knowledge allows us to provide sound and innovative advice to clients worldwide.
The Israeli Securities Authority issued an advance ruling paper, finding that cryptocurrency is a security subject to the Israeli Securities Law
Israel Technology
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The Israeli Securities Authority issued an advance ruling paper, finding that cryptocurrency is a security subject to the Israeli Securities Law. The Authority's position was delivered in an advance ruling request by Kirobo Ltd., a blockchain company that develops and operates a technology that allows users to cancel transactions made in digital currency. The company then charges a commission from the user. The commission may be paid in the same currency as the transaction or in the company's cryptocurrency.

The company sought the Authority's advance ruling that its cryptocurrency is a Utility Token, a term defined in a report issued by the commission for regulating issuance of cryptocurrencies. Utility Tokens are considered a means to allow access rights to a specific product or service and are therefore assets rather than securities. The company argued that because its cryptocurrency is meant to be used only in connection with its services, it ought to be deemed a Utility Token.

The Authority rejected the company's arguments and ruled that the company's cryptocurrency is a security and therefore subject to the Israeli Securities Law. The Authority explained that investors may choose to purchase the company's currency for financial purposes, with the expectation that its value will increase, as is common with securities investments. The Authority found that the company's coins may have a secondary market for investment purposes, rather than merely a means of paying for a specific service; that the coins are a significant asset of the company, and that the company has a right to change the value of the coins independently and allow their use for future developments. The Authority concluded that these findings suggest that the coins are not a Utility Token used for a specific product or service but rather a security that the company has an interest in it gaining value.

The Authority also explained that a broad interpretation of securities is necessary to protect purchasers of digital currencies.

CLICK HERE to read the Securities Authority's pre-ruling decision (in Hebrew).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

ARTICLE
2 February 2021

Israeli Regulator Says Cryptocurrency Is A Security Subject To The Israeli Securities Law

Israel Technology
Contributor
Pearl Cohen Zedek Latzer Baratz logo
Pearl Cohen is an international law firm with offices in Israel, the United States, and the United Kingdom. Our strength is derived from decades of legal experience and an intimate knowledge of the cutting edge technological, legal, and transactional issues facing our clients in local and cross border matters. This combination of experience and knowledge allows us to provide sound and innovative advice to clients worldwide.
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