The recent conflict in the Israel-Gaza region has sparked renewed interest in cryptocurrency regulation, particularly concerning its potential use in financing terrorism. A Wall Street Journal article initially claimed that groups like Hamas, Palestinian Islamic Jihad, and Hezbollah had amassed around $134 million in crypto over three years, raising alarm over its misuse.
Though the WSJ later corrected its report, the article had already fueled anti-crypto sentiment in Washington, leading to calls for tighter regulations. This culminated in the introduction of the bipartisan Terrorism Financing Prevention Act on December 8.
New Legislation to Address Crypto in Anti-Terrorism Efforts
This Act, if passed, would enable the U.S. Treasury to sanction foreign financial entities and cryptocurrency platforms involved in transactions with groups designated as terrorists by the U.S. The measures could include restricting U.S. bank accounts and blocking certain transactions.
Senator Mitt Romney linked the legislation to the recent Israel-Gaza conflict:
Senator Elizabeth Warren’s Digital Asset Anti-Money Laundering Act (DAAMLA) also gained momentum following the conflict. This bill, which aims to apply the Bank Secrecy Act to cryptocurrencies, has garnered increased support, with 19 senators now backing it.
Focus on Cryptocurrency Regulation and National Security
The Crypto Asset National Security Enhancement (CANSEE) Act is another proposal under review, focusing on enhanced surveillance of cryptocurrency transactions. Senator Warren has emphasized the necessity of incorporating cryptocurrencies into the Bank Secrecy Act, citing their use in illegal activities including terrorism financing and drug trafficking.
Concerns Over Cryptocurrencies in Terrorism Financing
The use of cryptocurrencies in terrorism financing, particularly by countries like Iran and recognized terrorist organizations, is a notable concern. In June 2023, Israel’s National Bureau for Counter Terror Financing (NBCTF) seized approximately $1.7 million in cryptocurrency linked to Hezbollah and Iran’s Quds Force.
Impact on Cryptocurrency Market and Future Trends
The recent conflict in the Middle East may influence the cybersecurity industry, as was seen following Russia’s invasion of Ukraine in 2022. There is also speculation that global tensions might increase the demand for Bitcoin as a safe-haven asset. Despite a 55% surge in Bitcoin’s price since the onset of the conflict, it is believed to be more driven by speculation about a U.S. Bitcoin ETF than the conflict itself.