Ari Redbord, global policy head at crypto tracking specialist TRM Labs, said there is now less crypto transfer activity on pro-Hamas support networks as a result.
"We are seeing a lot less activity in some respects since the war began," Redbord told AFP.
This is "primarily because Israel has been very aggressive and successful in taking down these fundraising efforts,"he added.
Israel has bombed Gaza in response to an unprecedented cross-border attack by Hamas militants who, while firing a massive rocket barrage, killed more than 1,400 people and took 222 hostages on October 7, according to Israeli authorities.
Israeli strikes have now killed more than 6,500 people in Gaza, according to the Hamas-run health ministry.
Shadowy world
Cryptocurrency is regarded as a speedy way to move cash that is unregulated by any central bank and is less traceable than a traditional bank transfer.
The shadowy world of digital units, based on decentralized blockchain technology, has gained notoriety for illicit transactions due to its under-the-radar appeal.
Two weeks ago, Israeli police revealed they had located and frozen accounts linked to Hamas that sought "to solicit donations on social networks" via Binance, the world's biggest cryptocurrency exchange.
A Binance spokeswoman said it "follows internationally recognized sanctions rules, blocking the small number of accounts linked to illicit funds."
Redbord, formerly a senior US government adviser, said Hamas had adopted crypto from 2019 at the latest, to seek funding via the Telegram messaging network and even on its own website.
Hamas decided in April that it would no longer accept cash via Bitcoin due to increased global surveillance of the world's biggest digital unit.
Crypto fundraising is now operated via a network of Hamas-linked support groups.
TRM Labs has closely monitored virtual crypto wallets linked to such support groups since the start of the war.
And it has concluded that much smaller amounts of cash than usual are being moved.
Two weeks after the attacks, support group Gaza Now received less than $6,000 in one of its crypto wallets, Redbord noted.
That compared with $800,000 in total since the wallet's creation in August 2021.
Meanwhile, authorities are well aware that digital assets are a minor part of a complex funding picture.
The U.S. State Department estimates that Iran funnels $100 million per year to Palestinian groups including Hamas.
'Small piece of puzzle'
"Cryptocurrency is a very small piece of a larger financing puzzle for Hamas," said Redbord.
"They are looking to Iran; they're ... imposing taxes on the Palestinians; they have a network of charities, and a diaspora of supporters who are sending donations not in cryptocurrencies."
"But crypto does play a role," he said.
Digital currencies still represent a significant revenue stream for Hamas and other allied groups.
Crypto addresses identified by Israel as being linked to Hamas received about $41 million between August 2020 and July 2023, according to Israeli analytics and software firm BitOK.
Other crypto addresses linked to Islamic Jihad received in excess of $154 million between October 2022 and September 2023, with some still active, it adds.
Some players in the sector simply turn a blind eye.
"Some cryptoasset businesses are intentionally or unwittingly allowing misuse of the crypto ecosystem," said Joby Carpenter, an expert on the industry.
"This trend is magnified where exchanges are based in lightly or unregulated jurisdictions," he told AFP.
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