What Role Is Crypto Actually Playing in the Israel-Palestine Conflict?

On Wednesday, a bipartisan group of 29 United States Senators and 76 congressmen led by Senators Elizabeth Warren (D-MA) and Sheldon Brown (D-OH) sent a letter to President Biden’s top advisors, demanding answers as to the role played by cryptocurrency in sponsoring recent attacks on Israel. They also pushed the White House on its plans to prevent crypto-financed terrorism in the future.

The letter marks the latest escalation in Washington of a developing narrative that crypto was a key enabling factor in a series of attacks carried out by the militant group Hamas on Israel earlier this month, which resulted in the deaths of over 1,000 Israelis and the taking of at least 150 more as hostages, per the Israeli government.

Hamas, which controls the Palestinian territory of the Gaza Strip, has used crypto as a fundraising tool since 2019. But analysts who track the group are now pushing back against assertions that crypto is playing a large role in the unfolding crisis in Israel and Palestine or that the financial technology poses greater threats to safety than other forms of banking.

‘Crypto Aid Israel’ Launches to Raise Funds Amid Gaza Conflict

“Crypto makes up a very, very small part of a much larger fundraising picture when it comes to Hamas,” Ari Redbord, Global Head of Policy at TRM Labs—a blockchain intelligence firm that tracks crypto-related crime—told Decrypt.

Since violence broke out in Israel on October 7, only a “relatively small” amount of cryptocurrency has been raised by Hamas or groups that support the organization, per Redbord.

TRM, like law enforcement agencies around the globe, tracks and analyzes data from potentially crime-affiliated digital wallets on blockchains—public, immutable ledgers that record crypto transactions. This transparency often makes it easier for law enforcement to identify wallets and get centralized crypto exchanges to freeze funds than it is for them to monitor and control traditional banking accounts. In recent years, American and Israeli officials have seized funds in hundreds of crypto wallets associated with Hamas.

Indeed, former CIA director Michael Morell previously called Bitcoin a “boon for surveillance” that should be embraced by governments around the world.

“You can’t do that in the traditional world, where you’re seeing networks of hawalas and shell companies and bulk cash smuggling,” Redbord said. Hawala refers to an informal method for transferring money without moving any funds that has been used for centuries.

“What’s missing from this debate,” he continued, “is that investigators are able to leverage the power of blockchains to investigate these cases in ways we never could before, and that’s leading to a lot of successes.”

While Redbord acknowledges that terrorist organizations have used crypto as a means to fundraise in the past, he argues these same terrorists will use any fundraising tools at their disposal, including traditional banking methods.

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“There are illicit finance risks in every financial system,” he said. “But there’s no talk about taking down the banking sector because banks are being used to transfer funds to Hamas.”

On Capitol Hill, crypto industry allies have started to push back against assertions that blockchain networks are disproportionately responsible for funding criminal activity or global terrorism. Some have gone so far as to express that the manner in which lawmakers are leveraging geopolitical turmoil to seek restrictions on crypto is bordering on cynical.

“The situation I do think has been used opportunistically in ways that I’ve found quite distasteful,” Sheila Warren, CEO of industry lobbying group the Crypto Council for Innovation, told Decrypt. “I know some of these folks know better.”

Chainalysis explains why recent viral estimates of Hamas’ crypto use are likely inflated.

It looks those estimates assume *all* flows through services providers that process illicit transactions are illicit. That’s probably not the case https://t.co/KtArmrW0Md

— Neeraj K Agrawal (@NeerajKA) October 18, 2023

To Warren, the great irony of the current crypto political discourse is that the American government’s current hostility to crypto will only serve to push the industry out of America, to other countries, where it will be even harder to regulate.

“It’s not U.S.-based exchanges that are the problem—it’s offshore,” Warren said. “And the more you offshore this technology, the more you’re opening up the aperture for terrorists to use it. That’s just a fact.”

Politicians skeptical of crypto have long painted the technology as “shadowy,” implying that it can more easily be used to skirt laws or to maneuver physical restraints than other forms of currency. The escalating humanitarian crisis unfolding in the Middle East is, in a grim sense, proving otherwise.

In the days following Hamas’ attack, the Israeli military has retaliated by dropping thousands of bombs on the densely populated Gaza Strip, killing over 3,300 people, according to Palestinian health authorities. The Israeli government also cut off all water, food, medicine, and electricity to the territory, triggering a humanitarian crisis.

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Numerous nonprofits have attempted to send truckloads of aid into Gaza via Egypt, but have thus far been prevented from entering the territory by continued Israeli bombings. President Biden announced during a visit to Israel Wednesday that he had tentatively reached a deal with Israel and Egypt to allow 20 trucks of aid to enter Gaza.

Steve Sosebee, the president and founder of the Palestine Children’s Relief Fund (PCRF), which provides free medical care and other essential services to Palestinian youth, said his organization solicits donations both in fiat currency and crypto.

The PCRF has only received a few crypto donations, Sosebee said, and is open to leaning further into digital assets—but the nonprofit is currently facing problems that cannot be solved by moving from traditional banking to blockchain networks.

“Getting funds out there is not the challenge at the moment,” Sosebee told Decrypt. “Nor is fundraising, for that matter. The challenge is how to get the aid that we provide, with that money, to the people on the ground who are under siege. And there’s no access.”

Supplies purchased by the PCRF and other Palestinian charities in fiat currency, and those bought with crypto, are currently equally unable to be sent into Gaza. For Sosebee, and for those on the ground in Gaza at the epicenter of the current crisis, the question of crypto versus fiat has quickly become a distinction without a difference.

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