Bitcoin and other crypto assets have Islamic scholars racking their brains as they attempt to discern how this new technology fits into Islamic finance, a concept that already dates back 1,400 years.
Read on to discover the opinions of various Islamic scholars and an answer to the question: Is Bitcoin halal?
What Makes Something Halal or Haram in Islamic Finance?
Islamic finance encompasses financial activities that comply with Sharia law — guiding principles drawn from the Quran and the sayings of Prophet Muhammad.
Based on these Islamic rules, some financial activities are allowed (halal), while others are prohibited (haram). That means Islamic finance isn’t at all like traditional finance, as some practices are forbidden for religious reasons.
For example, charging excessive interest, riba, on loans is deemed an exploitative activity because it favors the lender and takes advantage of the borrower.
Other haram activities include
Speculative behavior, maisir: This practice is generally regarded as haram. This means that gambling or speculating on gains from uncertain future events is considered a violation of Sharia law. That’s because generating wealth based on chance is considered unproductive. Nonetheless, financial products like options, futures, and other derivatives that require speculation are halal since they are guided by the International Swaps and Derivatives Association (ISDA), an organization that promotes efficient and safe Sharia-compliant derivatives markets.
Prohibited business activities: Businesses that engage in morally prohibited activities like selling pork, alcohol, and tobacco are haram.
On the other hand, halal financial practices entail
Equity finance (Mudarabah), where customers and banks share profits.
Leasing (Ijara).
Profit-and-loss-sharing joint ventures, where two parties provide capital to fund a project and share the profits in agreed proportions.
Islamic contract forwards (Salam and Istisna).
In Islamic finance, money has no intrinsic value — a term that defines some sort of inner or true value of a currency rather than its mere market price.
Muslims aren’t allowed to make money from money through activities like generating interest from lending. In other words, making money for the purpose of making money is haram.
Wealth can only be created via legitimate investments and trade. Hence, money must be used in a productive way. Additional principles of Islamic finance decree that risk must be shared and investments should benefit wider society socially and ethically.
Islamic Scholars’ Interpretation of Bitcoin
The status quo of what is halal and haram, as far as traditional financial practices go, is very clear. However, matters are different when it comes to crypto assets since they are new and complex. Therefore, digital assets have become a bone of contention for Islamic scholars as they attempt to clarify whether they are halal or haram.
Here are various interpretations of Bitcoin (BTC) and cryptocurrencies by Islamic scholars.
Sharia Review Bureau in Bahrain
Scholars from the Sharia Review Bureau in Bahrain said in 2018 that investments in cryptocurrencies such as ether (ETH) and bitcoin are permitted under Sharia law and, therefore, halal.
Mufti Taqi Usmani
Mufti Taqi Usmani has a different perception, arguing that Bitcoin and other cryptocurrencies are haram because they are used in speculative investments and illegal transactions.
Moreover, he says a currency is generally supposed to be a medium of exchange under Sharia law. When it is used to generate profits, it becomes haram. Therefore, in the words of Usmani, Muslims are not allowed to accept crypto as currencies.
The Shariah Committee Chairman of HSBC Amanah Malaysia Bhd, Dr. Ziyaad Mahomed
According to Dr. Ziyaad Mahomed, the Sharia law doesn’t require currencies to have intrinsic value. Instead, society should agree that a currency is valuable and acceptable in day-to-day transactions.
Judging by this view, this could mean the Islam community could consider bitcoin halal if there was a social consensus to use it as a currency.
Mufti Muhammad Abu-Bakar
Sharia advisor Mufti Muhammad Abu-Bakar’s crypto interpretation may have triggered a significant increase in BTC and ETH investment within the Muslim community in 2018.
He argued that all currencies have a speculative element, which means bitcoin’s speculative nature doesn’t necessarily make it haram, as every other currency can also be considered to be speculative in nature. Therefore, in his opinion, bitcoin is halal.
Shaykh Shawki Allam
The Egyptian Grand Mufti Shaykh Shawki Allam believes digital assets are haram since they have not earned enough credibility as currencies. His reasoning is similar to other Middle East Sharia scholars, who view crypto as high-risk assets.
“In my opinion, the trading of cryptocurrency is haram. This is because it is not approved by legitimate bodies as an acceptable medium of exchange. Such currencies are used in contraband trading and money laundering,” he said.
Asrorun Niam Sholeh
Asrorun Niam Sholeh is the head of religious decrees for Indonesia’s council of Islamic scholars. In his opinion, crypto trading is illegal because digital assets “have elements of uncertainty, wagering, and harm.”
Anas Amatayakul
Anas Amatayakul, a scholar that has led the committee directing the Islamic Bank of Thailand in Sharia, has an interesting take.
His fatwa (legal ruling) on crypto is that people should avoid it, but only for now. Amatayakul says he’s pro-technological change but admits the crypto space is so fast-moving that Muslims should avoid it for now to protect their wealth.
Fiqh Council of North America
The unanimousfatwa from North America’s Fiqh Council is that Bitcoin is halal under Sharia law.
The Sharia Advisory Council Branch of the Security Commission in Malaysia
This council’s view is similar to the position the Fiqh Council of North America has taken. The members of this council reckon that crypto trading and investment are permitted under Sharia law.
London-Based Shacklewell Lane Mosque
The Shacklewell Lane Mosque was one of the first mosques in the UK to accept crypto donations in 2018, indicating that its leaders regard crypto assets as halal.
Turkey’s Directorate of Religious Affairs
The directorate of religious affairs in Turkey considers cryptocurrencies haram because they are speculative assets, they aren’t overseen by any central authority, they are used in illegal activities, and their trading is “inappropriate.”
So, is Bitcoin Halal or Haram?
It is clear that Sharia scholars are divided when it comes to Bitcoin’s halal or haram status.
Those that say Bitcoin and other cryptocurrencies are haram mainly cite speculation, the illegal activities sometimes associated with the Bitcoin markets, and the lack of a central authority as the factors backing their positions.
On the other hand, scholars that consider Bitcoin halal look at the following aspects:
Decentralization: BTC is decentralized, hence preventing exploitation by central authorities.
Transparency: Bitcoin transactions are visible for anyone’s viewing.
Islamic contract rules: Based on these rules, there must be mal to regard bitcoin as halal. Mal alludes to effective storage and possession. Bitcoin fits these criteria because people can possess and store it, and it has commercial value (mutaqawwam).
Anti-interest: The concept of Bitcoin emanates from a need to empower society rather than profiting its founder(s).
That means Bitcoin can either be halal or haram depending on the factors one evaluates or where one lives.
For example, Egypt and Turkey seem to be taking the haram stance, while Malaysia and Bahrain regard Bitcoin as halal based on their scholarly interpretations above.
Furthermore, the UAE and Saudi Arabia, which are majority Muslim countries, are planning to create their own digital currencies in the form of central bank digital currencies (CBDCs). This shows a positive view in these jurisdictions toward digital assets in general.
That said, the Islam community may have to come to some sort of agreement in the future since the crypto sector is increasingly becoming hard to ignore as mainstream companies like Google, Visa, and Apple get in on the action. There is also a possibility that the current global financial sector may evolve toward the integration of decentralized finance (DeFi). In that case, Islamic finance surely does not want to be left behind.
The market is currently in a news-driven environment where the prices of cryptocurrencies have been determined by news agenda rather than fundamentals.
Bitfinex analysts have warned crypto investors to be cautious as bitcoin’s (BTC) recovery over the weekend is not a sign that its correction is over; the asset could witness more bloodshed in the near term.
In the latest Bitfinex Alpha report, experts deemed the market’s reaction this week critical, especially as supply alleviated over the weekend could return when traditional markets open.
“No Man’s Land”
Since Saturday, bitcoin has risen almost 10% from $57,600 to $63,000, closing last week in the green. The asset has surged above the 125-day range low of $60,200, which it broke through earlier this month after news of the German government’s massive BTC selling hit the market.
Market sentiment began to improve after reports that wallets linked to the German government were almost empty. However, the positive sentiment may not be sustained for long as the BTC the German authorities moved to trading desks and exchanges are yet to be sold.
While the supply from Germany appears to have been factored into bitcoin’s market price, Bitfinex analysts believe the end of selling pressure depends on how the involved trading desks execute their trades in the coming days.
Although the shift in sentiment underscores the market’s capacity to integrate new information and adjust expectations quickly, analysts think the market’s reaction over the first two trading days of the week cannot be overlooked for two reasons.
First, the low support level in the $60,200 range has now become a potential resistance line. Second, trading patterns over the past three months suggest that weekends are usually favorable for markets, especially on Saturdays when supply pressure seems to subside.
“We are now in no man’s land until we get clear resolution above or below this level,” the analysts said.
A News-Driven Environment
Besides the potential resistance level and three-month weekend trading pattern, the market is currently in a news-driven environment, where the prices of cryptocurrencies have been determined by news agendas rather than fundamentals.
Since selling pressure concerns are not yet completely obsolete due to upcoming Mt Gox creditor distributions, Bitfinex analysts expect such headlines to continue to have some impact on price movements. As such, the analysts urged investors to exercise caution in their trading strategies.
BlackRock’s IBIT led with $117.25 million in inflows on July 15, also being the most traded Bitcoin ETF.
The US spot Bitcoin ETFs recorded a daily net inflow of $301 million on July 15th. This extended their winning streak to seven consecutive days amidst a broader market recovery.
None of the ETFs recorded outflows for the day.
Bitcoin ETFs Rake in $16.11B in Net Inflows Since Jan
According to the data compiled by SoSoValue, BlackRock’s IBIT, the top spot Bitcoin ETF by net asset value, recorded the largest net inflows of the day at $117.25 million. IBIT was also the most actively traded Bitcoin ETF on Monday, with a volume of $1.24 billion. Ark Invest and 21Shares’ ARKB came in close behind with net inflows of $117.19 million.
Fidelity’s FBTC experienced net inflows of $36.15 million on Monday, while Bitwise’s BITB saw $15.24 million in inflows. VanEck’s HODL, Invesco and Galaxy Digital’s BTCO, and Franklin Templeton’s EZBC funds also recorded net inflows. Meanwhile, Grayscale’s GBTC and other ETFs, such as Valkyrie’s BRRR, WisdomTree’s BTCW, and Hashdex’s DEFI, registered no flows for the day.
A total of $2.26 billion was traded on Monday. The trading volume for these ETFs was less than in March when it exceeded $8 billion on some days. Meanwhile, these funds have collectively attracted $16.11 billion in net inflow since their January launch.
What’s Next For Bitcoin?
Earlier this month, bitcoin’s price decline was mainly due to fears of massive selling pressure from Mt. Gox and the German government’s BTC sales.
But the assassination attempt on pro-crypto former US President and presumptive Republican candidate Donald Trump at Saturday’s rally seemed to spark a recovery in the world’s largest digital asset, and experts are bullish on the asset’s price trajectory going forward. Bitcoin surged more than 9% over the past week and was currently trading slightly below $64,000.
Veteran trader Peter Brandt discussed bitcoin’s price outlook, suggesting a potential major rally. He referred to a pattern he terms “Hump->Slump->Bump->Dump->Pump” and highlighted that the July 5 double top attempt was a bear trap, confirmed by the July 13 close. He sees a likely continued upward trend but warned that a close below $56,000 would negate this bullish view.
“Bitcoin $BTC could be unfolding its often-repeated Hump…Slump…Bump…Dump…Pump chart construction. Jul 5 attempt at the double top was a bear trap, confirmed by Jul 13 close. Most likely scenario now is that bears are trapped. Close below $56k negates this interpretation”
PeckShield alert reveals LI.FI’s protocol vulnerability is similar to a March 2022 attack, with the same bug recurring.
The decentralized finance (DeFi) platform LI.FI protocol has suffered an exploit amounting to over $8 million.
Cyvers Alerts reported detecting suspicious transactions within the LI.FI cross-chain transaction aggregator.
LI.FI Issues Warning After $8 Million Exploit
LI.FI confirmed the breach in a statement on July 16 via X: “Please do not interact with any http://LI.FI powered applications for now! We’re investigating a potential exploit.” The team clarified that users who did not set infinite approval are not at risk, emphasizing that only those who manually set infinite approvals seem to be affected.
According to Cyvers Alerts, more than $8 million in user funds have been stolen, with the majority being stablecoins. According to on-chain data, the hacker’s wallet holds 1,715 Ether (ETH) valued at $5.8 million and USDC, USDT, and DAI stablecoins.
Cyvers Alerts advised users to revoke relevant authorizations immediately, noting that the attacker is actively converting USDC and USDT into ETH.
Crypto security firm Decurity provided insights into the exploit, stating that it involves the LI.FI bridge. “The root cause is a possibility of an arbitrary call with user-controlled data via depositToGasZipERC20() in GasZipFacet, which was deployed 5 days ago,” Decurity explained on X.
“In general, the risks behind routers, cross-chain swaps, etc. are about token approvals. Raw native assets like (unwrapped) ETH are safe from these kinds of hacks b/c they don’t have approvals as an option. Most users & wallets also no longer do “infinite approvals” which gives a smart contract total control on removing any amount of their tokens. It’s important to understand which tokens you’re approving to which contracts.
This dashboard looks for all transactions of a user that intersects Lifi. Not all of these transactions indicate risk- but you can see how, broadly, integrations & layers of tech (like how Metamask bridge uses Lifi on BSC) can complicate how users do or don’t put their assets at risk. Revoke Cash is the most well known approval manager app.
But it’s also good security practice to simply rotate your address. New addresses start with 0 approvals, so starting fresh by moving your tokens to a fresh address is another good security practice.” – commented Carlos Mercado, Data Scientist at Flipside Crypto.
Recent Exploit Mirrors March 2022 Attack
Further analysis by PeckShield alert revealed that the vulnerability is similar to a previous attack on LI.FI’s protocol that occurred on March 20, 2022. That incident saw a bad actor exploit LI.FI’s smart contract, specifically the swapping feature, before bridging.
The attacker manipulated the system to call token contracts directly within their contract’s context, making users who had given infinite approval vulnerable. This exploit resulted in the theft of approximately 205 ETH from 29 wallets, affecting tokens such as USDC, MATIC, RPL, GNO, USDT, MVI, AUDIO, AAVE, JRT, and DAI.
“The bug is basically the same. Are we learning anything from the past lesson(s)?” PeckShield Alert said in a July 16 X post.
Following the 2022 incident, LI.FI disabled all swap methods in its smart contract and worked on developing a fix to prevent future vulnerabilities. However, the recurrence of a similar exploit raises concerns about the platform’s security measures and whether adequate steps were taken to address the vulnerabilities identified in the previous breach.
LI.FI is a liquidity aggregation protocol that allows users to trade across various blockchains, venues, and bridges.
