The recent Israel-Gaza conflict reignited debates about cryptocurrency. One Wall Street Journal article claimed Hamas, Palestinian Islamic Jihad, and Hezbollah had accumulated $134 million in crypto over three years, amplifying concerns of its use in terrorism financing.
Although the WSJ later corrected the piece, the article intensified anti-crypto sentiment in Washington. This, in turn, prompted demands for stricter regulations which led to the introduction of the bipartisan Terrorism Financing Prevention Act on December 8.
The Act allows the Treasury to identify and sanction foreign financial entities and crypto platforms engaged in transactions with groups recognized as terrorists by the US. Measures including restricting American bank accounts and blocking transactions.
Senator Mitt Romney directly linked the bill to the recent conflict between Israel and Gaza.
He said: “The October 7 attacks on Israel perpetrated by Hamas have made it more urgent and necessary for the U.S. to counter the role that cryptocurrency plays in the financing of terrorism.”
The ongoing conflict has spurred momentum for Senator Elizabeth Warren’s Digital Asset Anti-Money Laundering Act (DAAMLA), which aims to apply the Bank Secrecy Act to cryptocurrencies.
This bill received increased support, with five additional senators co-sponsoring it on December 11. This means there are 19 people backing it, or about one-fifth of all senators. This suggests significant traction for the legislation.
An earlier bill, the Crypto Asset National Security Enhancement (CANSEE) Act, is also under consideration. It proposes increased surveillance over crypto transactions. Senator Warren claimed recently that major bank CEOs agree with her views on the matter.
She said: “We have a serious problem in this country and that is a part of the financial system is being used by terrorists, by drug traffickers, by rogue nations, in order to launder money, move money through the system and finance their illegal activities.”
Senator Elizabeth Warren emphasized the need for Congress to revise the Bank Secrecy Act to include cryptocurrencies. She highlighted their use in financing terrorism, drug trafficking, and even contributing to North Korea’s nuclear program.
While the goals of curbing terrorist funding and money laundering are commendable, there are concerns about potential adverse consequences that could significantly affect the cryptocurrency industry.
Cryptocurrency being used for terrorism financing is a real concern. Not only recognized terrorist organizations but also countries like Iran are implicated. Iran, significantly involved in regional conflicts has used cryptocurrencies to support groups like Hamas and Hezbollah.
In June 2023, Israel’s National Bureau for Counter Terror Financing (NBCTF) seized around $1.7 million in cryptocurrency linked to Hezbollah and Iran’s Quds Force. Terrorists often favor smaller blockchain networks over major ones like Bitcoin and Ether. Between July 2021 and October 2023, the NBCTF froze 143 wallets on the Tron blockchain, suspected of terrorist connections.
The recent Israel-Hamas conflict is speculated to potentially boost the cybersecurity industry, similar to the growth observed in this sector following Russia’s invasion of Ukraine in 2022. Intelligence agencies are increasingly monitoring the blockchain for suspicious activities.
The conflict has also heightened global tensions, which might drive demand for Bitcoin as a safe haven. Although Bitcoin’s price surged 55% since the conflict’s onset, it’s believed to be more due to speculation about a US Bitcoin ETF than the conflict itself.
The correlation between Bitcoin and the stock market, prominent during the COVID-19 pandemic era, appears to have dissipated. In the context of Israel, there hasn’t been a significant shift towards Bitcoin as a decentralized payment tool yet, unlike in scenarios like the US-Iran conflict or Turkey’s currency crisis. However, if the conflict intensifies and spreads, it might influence BTC demand more substantially.