For most BTC holders outside of the Islamic world, the philosophical nuts and bolts of whether BTC is permissible for a practicing Muslim may not seem very important. However, when you consider that at least 1.6 billion people on the face of the planet are Muslim, the connection between the philosophical debate and the price of Bitcoin becomes clear.
In mid-April, a report called ‘Is Bitcoin Halal or Haram: a Sharia Analysis’ was published by certified Muslim legal expert Muhammad Abu Bakar. The report analyzed whether Bitcoin was acceptable under Islamic law (and thus ‘halal’) or forbidden by Islamic law (‘haram’).
Bakar’s report was favorable to BTC–it found that Bitcoin was indeed halal as long as Muslim users have a certain intent when they purchase it: “crypto traders should not purchase cryptocurrencies for investment purposes,” he wrote. “Rather, it is advisable to utilize cryptocurrency networks as a payment system in the cases where cryptocurrency network offer specific benefits and advantages over conventional systems.”
In other words, the ‘digital cash’ philosophy and usage of cryptocurrency are halal, while buying and ‘hodling’ Bitcoin as an investment may not be.
Since the report was published, at least one mosque has followed suit and declared Bitcoin as halal.
— Phil Jeudy (@PhilJ) May 23, 2018
Shortly after Bakar’s report was published, the price of Bitcoin rose roughly $1000. Reports emerged connecting the price bump with a possible influx of new, Islamic users into the BTC market. However, not everyone was convinced of the connection.
Some Are Skeptical of the Effect of the Declaration
Exante’s analytics expert Sean Rakhimov seems to think that the timing of the bump with the declaration of BTC as halal was little more than coincidence. In an exclusive email to Finance Magnates, he compared the declaration of Bitcoin as halal with the 2016 declaration of gold as halal: “back in 2016, a positive opinion was issued about investing in gold by Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).”
“Given that there are 1.6 billion Muslims out there one would think this should have a significant impact on the price of an asset,” he continued. “However, that was not the case for gold. Since 2016, the price of gold did nothing, especially in comparison to other assets. We can speculate about the reasons for that, but so far the effect on Bitcoin price has been equally underwhelming.”
He continued with another comparison to the price of oil: “the price of oil bottomed around $28 in January of 2016 and is nearing $80 as we speak. At 28 dollar oil many Muslim countries, whose fortunes are largely tied to oil were, probably, finding it challenging to save and invest. And while gold is pretty well understood and easy to invest in, Bitcoin is still very much a mystery to the majority of investors.”
“If that assumption is correct,” he said, “we are yet to see the effects of these decisions on both gold and Bitcoin.”
Bitcoin as Digital Cash is Halal; Bitcoin as Investment is Haram
Despite Bakar’s declaration of Bitcoin as halal, some other prominent voices in the global Islamic community have declared and maintained that Bitcoin is haram. The Turkish Directorate of Religious Affairs declared that “buying and selling virtual currencies is not compatible with religion at this time because of the fact that their valuation is open to speculation, they can be easily used in illegal activities like money laundering and they are not under the state’s audit and surveillance.”
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The issues at hand seem to be the concept of ‘usury’ (the practice of issuing loans with unreasonably high interest rates) as well as gambling. Bitcoin’s renowned volatility could make the act of buying and selling BTC classifiable as gambling under Sharia law.
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“If you were trying to sell 1 Bitcoin for USD and during your transaction the value drops by $100 due to various unforeseen and unpredictable circumstances, you will incur a loss. This would make it similar to a gamble,” wrote Haamiz Ahmed, sub-editor at ProPakistani.
However, Ahmed added that observable price patterns and the known effects of things like news on the price of Bitcoin could make BTC’s ups and downs a little more predictable, thus rendering it less of a gamble.
Cryptocurrency May Be More Suited to Islamic Law than the Modern Financial System, Some Believe
Despite the fact that Bitcoin has been declared as haram by certain religious authorities in the Islamic world, “there have always been early adopters, from Karachi to Kuala Lampur [sic], who have held cryptocurrency classes and who have been trading for the past few years,” wrote Hamdan Azhar, a founding member of Bitcoin Center NYC, in an exclusive email to Finance Magnates. He believes that “the recent declaration opens the door for the masses to embrace Bitcoin and the promise of blockchain technology.”
In fact, Azhar believes that cryptocurrency may be particularly well-suited for use by the global Islamic community because of its foundational principles: “many Muslims have been rightfully skeptical of the modern financial system which is founded on debt and interest,” he wrote. “Bitcoin, based on digital scarcity and technological innovation, is exciting for many Muslims who have always been open to alternative financial models that are more compliant with Islamic law and ethics.”
Azhar added that because almsgiving is one of the five pillars of Islam, “It stands to reason that instead of relying on legacy fiat currencies, Muslims are beginning to embrace decentralized currencies in their communities, especially when giving back to the underprivileged who can now become their own banks thanks to cryptocurrency.”
The Blockchain Industry in Islamic Countries
Even if the price of Bitcoin has not been majorly affected by the possible influx of Islamic users into the market (yet), the declaration of Bitcoin as halal could slowly begin changing the financial systems in countries with populations primarily comprised of Muslims.
At least one startup is attempting to strengthen the relationship between Islam and cryptocurrency. According to Al-Jazeera, Malaysia-based OneGram is issuing a gold-backed cryptocurrency as “part of [an effort] to convince Muslims that investing in cryptocurrencies complies with their faith.”
Ibrahim Mohammed, one of the founders of OneGram, said that “gold was among the first forms of money in Islamic societies, so this is appropriate. We are trying to prove rules and regulations from sharia are fully compatible with digital blockchain technology.”
HabibiCoin, a Dubai-based crypto startup, is attempting a similar feat. According to HabibiCoin’s website, the cryptocurrency has been designed as a Sharia-compliant cryptocurrency to “reduce interest-bearing debt, protect [the] devaluation of assets, and create an efficient new medium to transact for our community.”
Writer Davy Barker agrees that Bitcoin and blockchain-based currencies could play a major role in Islamic finance. “At best paper money fulfills two of the six traits of money in Islamic law, while Bitcoin fulfills four or five,” he wrote in a blog post. “So, Muslims who regard paper as money should certainly regard Bitcoin as money, probably more-so, and Muslims who reject paper money and are searching for alternatives should take a long hard look at Bitcoin.”