Israel-Hamas war puts crypto back in the hot seat

Lawmakers in the U.S. are cracking down on cryptocurrency to disrupt funding to Hamas, bringing attention (once again) to digital currency’s darker uses.

Driving the news: The U.S. Treasury Department has proposed rules that would classify cryptocurrency mixers — which take funds, mix them with those from other users and return them to make tracing difficult — as money laundering tools that threaten national security.

Why it matters: Hamas’ attack on Israel has fueled those eager to curb crypto’s use in illicit activities. A lobbyist told the Financial Times this will make it harder to pass laws legitimizing crypto, while Coinbase claimed the events are being used to “further an anti-crypto agenda.”

Zoom out: Decentralized currencies have a documented history in dark web transactions and online scams. They also give a fundraising avenue to terrorist groups without access to traditional banking (though analysis shows crypto makes up a small part of Hamas’ funding).

Yes, but: Lawmaker scrutiny isn’t dampening renewed crypto optimism. This week, Bitcoin prices topped $41,000 for the first time since the 2022 “crypto winter” began, while shares in Coinbase and Grayscale Bitcoin Trust were up 7% and 5%, respectively, on Tuesday. —JK