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On June 6, the Tel Aviv district court announced its official ruling on the dispute between Israeli bitcoin exchange Bits of Gold and the country’s second largest financial institution Bank Leumi. The court ruled in favor of Bank Leumi, dismissing the case of Bits of Gold and the denial of banking services for bitcoin startups and service providers in the region.

According to Finance Magnates that obtained the court documents, Bank Leumi told the Tel Aviv district court that the financial institution could no longer provide banking services to bitcoin exchange Bits of Gold due to the country’s strict Anti-Money Laundering (AML) policies. Representatives of Bank Leumi stated that cryptocurrencies are difficult to control under the AML systems of Israel and because of that, the bank itself cannot follow AML requirements set by the government if it continues to provide services to cryptocurrency service providers.

Although Bank Leumi acknowledged the fact Bits of Gold had established efficient and complete KYC systems to remain fully compliant with AML requirements imposed by local financial regulations, the representatives of Bank Leumi claimed that KYC systems cannot be utilized to unravel the end receiver of a transaction.

Similar to the statement the US Securities and Exchange Commission (SEC) issued to the public in regard to the rejection of the Winklevoss twins’ bitcoin ETF COIN, Bank Leumi emphasized that the major factor that convinced the bank to reject Bits of Gold was the lack of regulation in overseas bitcoin and cryptocurrency markets.

Ever since the popularization and global adoption of bitcoin as digital gold, a settlement network, and a digital currency, certain banks have continued to deny providing services to companies that deal with cryptocurrencies. Startups in the UK and Australia greatly suffered from the denial of banking services throughout 2014 to 2016 before the government stepped in and regulated the fintech, bitcoin and cryptocurrency markets.

On March 17, UK-based bitcoin exchange Bittylicious received a letter from Santander Bank which read:

“We want to let you know that we can’t offer you banking facilities anymore. Under the terms and conditions of the account, we can withdraw banking facilities by giving you notice in writing and, in line with our company policy, we don’t give further information about how we’ve made our decision.”

The controversial decision of the Tel Aviv district court and Bank Leumi, the second largest bank in Israel, has positioned the Israeli bitcoin and cryptocurrency markets in an awkward state. In 2015, some of the largest banks in Australia abruptly terminated banking services provided to bitcoin and cryptocurrency startups without providing any sort of statements or explanation to Australian startups.

As a result, companies simply left the Australian bitcoin industry and market to other innovative markets such as Hong Kong, Singapore, Japan and South Korea due to the country’s inefficient regulatory frameworks for bitcoin. Within less than two years, Japan and South Korea became the third and fourth largest bitcoin exchange markets in the world, while Australia has virtually no exchange market.

Recognizing the fundamental error regulators have made by interrupting the development of an early-stage technology and market in bitcoin, the Australian government recently removed double taxation on bitcoin trading and announced its plan to create more practical and startup-friendly regulatory frameworks to boost the Australian bitcoin industry.

It has become too late for Australia as other regions have significantly outpaced Australia regarding development, market share and user base. The approach of the Israeli finance sector and government toward the development of bitcoin and cryptocurrencies, in general, will likely backfire shortly, as it did in Australia and many other regions.

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