Reform of Israel's digital asset regulations may add 70,000 jobs and $38 billion to the country's GDP, according to KPMG. The Israeli Crypto Blockchain & Web 3.0 Companies Forum recently initiated a lobbying effort aimed at pushing for regulatory reforms. This comes at a time when public support for easing rules on stablecoins and tokenization is growing.

At a recent event in Tel Aviv, Forum leader Nir Hirshman-Rub highlighted that many Israelis are already familiar with cryptocurrencies. Research indicates that over 25% of the population has engaged in crypto transactions in the past five years, while more than 20% currently hold digital assets.

The landscape for digital assets in Israel is evolving steadily. A report from Chainalysis noted that the country's crypto economy saw inflows surpassing $713 billion last year. This surge in activity coincided with heightened retail engagement following the October 2023 Hamas attacks.

Israeli firms like Fireblocks and Starkware are leading players in the global digital assets arena. These companies are part of the Forum's sponsorship group and are central to discussions about the future of crypto in the country. According to Startup Nation Central, over 160 local startups have captured more than 5% of the $30 billion invested globally in the sector, employing around 2,500 people.

However, challenges remain. Many Israeli banks are hesitant to work with companies involved in digital assets, often requiring extensive due diligence that complicates the process. Hirshman-Rub pointed out that this reluctance creates barriers for businesses wanting to operate in the crypto space.

The Forum is advocating for several reforms, including changes to an income tax ordinance that currently imposes a higher tax rate on token distribution to employees compared to traditional stock options. While stock options are taxed at a 25% rate, tokenized options face a 50% tax rate, creating a significant disincentive.

In July, Israel's National Crypto Strategy Committee submitted an interim report for parliamentary review. This report laid out a strategic framework encompassing five key pillars, including the establishment of a unified regulatory body and clear rules for token issuance.

In August, the Israel Tax Authority introduced a Voluntary Disclosure Procedure aimed at encouraging taxpayers to report previously unreported income, including digital assets. However, participation has not met expectations, and the agency remains committed to seeing the initiative through by August 2026.

The challenges within the Israeli banking system are complicating these efforts. Tax Authority director Shay Aharonovich noted that the reluctance of banks to accept cryptocurrency is a significant barrier. This, in turn, affects people’s willingness to disclose their earnings, as many want to utilize the funds they earn from crypto transactions.

Despite these hurdles, there is optimism in the air. The growing public interest and potential economic benefits make a strong case for regulatory change. In the coming years, 2026 is anticipated to be a pivotal year for Israel's digital asset industry, and the Forum is determined to make its voice heard. The Israeli public is ready for change, and it's time for policymakers to catch up.