Israeli companies hold key positions in the emerging digital assets market, reaching $2.5 trillion last November. Two Israeli companies active in this field are unicorns, while many others have the opportunity to develop and grow in Israel. Moreover, according to a KPMG report, some $30.2 billion was invested in cryptocurrency, blockchain, and Web 3.0 companies worldwide in 2021, while according to SNC, $1.726 billion was invested in Israeli companies in the field during this period, constituting approximately 5.2% of the total investment in the digital assets ecosystem in the world.
The Opportunity
Israeli companies hold key positions in the emerging digital assets market, reaching $2.5 trillion last November. Two Israeli companies active in this field are unicorns, while many others have the opportunity to develop and grow in Israel. Moreover, according to a KPMG report, some $30.2 billion was invested in cryptocurrency, blockchain, and Web 3.0 companies worldwide in 2021, while according to SNC, $1.726 billion was invested in Israeli companies in the field during this period, constituting approximately 5.2% of the total investment in the digital assets ecosystem in the world.
The high yields of the high-tech industry are not a result of luck alone. They are the result of decades in which the industry was pushed forward by the best minds in Israel; generations of entrepreneurs, investors, and talented managers, who foresaw the technological future and the internet revolution and fought against all odds to make Israel an IT empire.
The local cybersecurity industry, which was considered 20 years ago as a small niche populated by tech geeks sitting in the dark, grew into huge companies traded in the world's leading stock exchanges and worth billions of dollars in value while creating jobs, paying taxes, and competing with top-of-the-line global companies.
On March 9, 2022, President Biden signed an executive order stating that the US government should "reinforce United States leadership in the global financial system… including through the responsible development of payment innovations and digital assets…".
Aside from reviewing currently existing risks, the US government sees cryptocurrency development as a means of maintaining a leadership position in the global financial field, reducing commissions and financial transaction prices, responsibly bringing a wider population into the financial domain, and reinforcing the role of the US in the world.
In addition, the executive order instructs the federal government to consider the creation of a US Federal Reserve digital currency (CBDC) as an alternative that would preserve the value of the national currency. We are watching from the sidelines as the industry booms with huge investments and mass adoption, alongside questions about the safe and effective use of digital currency for our future. Nevertheless, we must move forward, resolving these questions along the way, as being left behind could be irreparable.
Like the Internet in its early days, this growing industry also raises many questions about its place in the future of human society.
Recently, significant steps in the cryptocurrency ecosystem have also been taken in the United States.
Unfortunately, Israel imposes significant barriers to establishing local blockchain companies, and only a few make it to the other side of the impossible regulatory burden, combined with the refusal of Israeli banks to serve companies engaged in the field. Even after establishing a company, the founders are forced to ward off regulatory pressure on the one hand and investors' pressure to leave Israel for good. There are increasing reports that boards and investors deem the activity in Israel risky in light of the troublesome regulatory environment and lack of confidence in the ability to conduct certain activities.
The State of Israel will thereby lose tax income, jobs, foreign capital movements into Israel, the formation of technological and business knowledge, and especially its technological superiority in the coming future. Moreover, the State of Israel already suffers from a capital leakage away from local investments and a brain drain.
We believe that to maintain Israeli technological superiority and continue moving towards the future; one must take controlled risks and not be afraid of technological innovation. We call on lawmakers, leaders, and regulators to advance the blockchain and Web 3.0 industry, and together, we will be able to build the future generation of technology companies.
Cryptocurrency, blockchain, and Web 3.0 are now perceived by opinion leaders, venture capitalists, leading US investors, and entrepreneurs as the next generation of the Internet as we know it. Web 3.0 has multiple vital uses:
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Web-based financial systems - the ability to transfer wealth digitally and directly while reducing intermediaries, regardless of third parties, at any time, in a cost-effective manner.
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Reducing the dependence and centralization created by big corporations that control the content, social networks, and the ability to make a living as business owners or Web creators.
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Increasing user privacy and promoting user control of personal information.
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Digital assets and Internet economies.
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Innovative business models enabling cross-border and cross-country collaborations.
This technology started developing about a decade ago, and COVID-19 has accelerated its development significantly. Thousands of new companies were established in the field, and billions of dollars were invested in new startups launching the industry across Europe, the US, and Asia.
Below are data illustrating the industry’s growth:
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The market capitalization of digital assets is $2.1 trillion as of today [1]. In comparison, the market cap of all public companies in the United States is approximately $48.5 trillion [2]
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According to the White House fact sheet, 16% of Americans, who make up about 40 million people, own or have used digital currency [3].
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More than 100 countries worldwide are considering issuing and using central bank digital currencies (CBDC).
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$30.2 billion have been invested in cryptocurrencies, blockchain, and digital currencies in 2021 [4], and $1.726 billion in Israeli companies.
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Companies like eToro turned into unicorns. However, despite employing hundreds of staff in Israel, their business is aimed at overseas markets.
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According to a study by Fidelity, 7 out of 10 institutional investors plan to acquire digital assets soon;
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Fireblocks, one of the few Israeli startups in the field, has raised over $1 billion in rounds led by world-class venture funds like Coatue and Sequoia and is currently valued at about $8 billion [5].
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Starkware, an Israeli startup based on the groundbreaking research of Prof. Eli Ben Sasson from the Israel Institute of Technology, raised more than $100 million from leading funds such as Sequoia and Paradigm. Recently, another round of funding has been raised, reflecting a value of over $8 billion for the company.
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Venture capital firm Andreessen Horowitz sees the field as the next computer revolution and recently raised a $2.2 billion fund towards investments in blockchain, Web 3.0, and digital assets, and aims to raise another $4.5 billion for activities in the field.
