Bitcoiners Sue Banks in Israel

Bitcoiners Sue Banks in Israel

Israeli banks are facing lawsuits brought by domestic cryptocurrency enthusiasts. A recent freedom of information request demonstrates how Bitcoin holders in the country want more clarity regarding bank policies on cryptocurrency trading. Most banks there, like in much of the world, are cautious when banking blockchain companies, which makes life difficult for enterprise businesses in the blockchain industry.

In recent years, Israel has become a hotbed for cryptocurrency activity. Increasingly, people aim to obtain cryptocurrency, and this is often done through a bank account. For Bitcoin enthusiasts, this proves to be rather problematic in the country.

Local banks will not allow new clients to open an account for cryptocurrency purposes. This is especially true when it comes to depositing proceeds from a sale of cryptocurrency. These transactions are often blocked, which causes problems for the customer in question. Many years of uncertainty and opposition culminate in this freedom of information petition.

Through this petition, locals aim to gain valuable insights. They are primarily interested in learning the Bank of Israel’s stance on cryptocurrency trading. Furthermore, they want to know how commercial banks will tackle this industry in the years ahead.

“In recent months, we have instituted action to obtain the policy of each commercial bank on deposits originating in cryptocurrency. We feel that there is a general policy of refusing to accept money, but the regulator is not helping us to obtain this policy. Under the Banking (Licensing) Law, it is the duty of a bank to state to the Bank of Israel the policy under which it refuses to conduct transactions. We therefore contacted the Bank of Israel and asked for this information, but the Bank of Israel did not agree to disclose this policy to us. We therefore decided to petition the court to force the Bank of Israel to provide us with a copy of the policy submitted to it by the banks,” Bitcoin Association legal adviser Adv. Jonathan Klinger said.

To this date, the Bank of Israel has not made its position clear. Previous requests to obtain this information were rejected due to “risk of exposing commercial secrets”. The Israel Bitcoin Association now doubles down on its efforts through this petition. In turn, this should result in regulatory clarity regarding Bitcoin and other cryptocurrencies. To this date, no official rules exist in the country. At least one bank responded they would at least look at the petition.

“We are studying the petition, and will comment on its assertions in our response,” Bank Hapoalim said.

Banking issues in the cryptocurrency are nothing new. Particularly cryptocurrency service providers struggle in this regard. The cryptocurrency industry has a bad reputation. Its activity is often associated with criminal activity. Banks are wary of these illegal proceeds, which means crypto service providers struggle to find a financial partner. As a result, they often have to turn to “other solutions”.

A noteworthy example comes in the form of Bitfinex. The company “misplaced” $850m in customer funds by relying on a Panama-based financial services provider.

For a while, customer withdrawals could not be honored. That situation was rectified eventually, yet it serves as a solid example of the ongoing banking problems in the cryptocurrency industry.

In the early years of Bitcoin trading, numerous exchanges and trading platforms faced similar issues. TradeHill, a popular platform in 2011, switched banking partners numerous times. Once a bank discovered the TradeHill business model, the company’s account would be shut down almost immediately.

CryptoCompare, a UK-based research firm, faced similar problems. None of the major banks in London want to provide support for this cryptocurrency venture.

Not everything is doom and gloom between banks and crypto service providers. Coinbase and Gemini have successfully developed a healthy relationship with banks. Both trading platforms have become increasingly successful because of their “status”.

The current lack of regulation in most countries is partially to blame for this uneasy situation. In countries like India, anti-cryptocurrency regulation poses its own set of problems. Enthusiasts are actively trying to circumvent these restrictions. Even so, the Reserve Bank of India maintains its ban on dealing with cryptocurrencies.

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