In this post, we will answer this question – is Bitcoin trading Halal or Haram according to Islam?
Finance is a sensitive topic in Islam. Hence, it is essential to consider how money is made and used to avoid going against Islamic law.
When bitcoin and blockchain technology was introduced, many people saw it as a new avenue of making millions. For Muslims, questions were surrounding the new decentralized currency and its technology.
There is nothing wrong with using bitcoin as a means of exchange like your FIAT currencies. However, it is different when you invest/trade bitcoin because you have a profit-making motive. This brings up the question – is it halal or haram to trade bitcoin?
Islamic scholars and leaders have tried to address the issue several times, but reaching a single conclusion has not been possible. Several factors are involved, which could make currency trading halal or haram.
Haram In Finance Based On Islamic Tenets
Muslims make use of money, just like every other religious group. What causes haram in finance is if money is used in impermissible methods. Some of these impermissible methods include:
- Riba – charging interests for loans
- Bribery – illegal financial payments
- Gaining money from shady sources like through lotteries and gambling
- Exploiting money from others. For instance, you underpay your staff, or you make a profit over what is not yours.
- Money hoarding
Among all listed methods above, the issue of bitcoin trading being halal or haram relates to gaining money from odd sources (gambling) and exploiting money from others.
Is Bitcoin Trading Gambling?
Bitcoin is a cryptocurrency and a digital currency just like Gold. The fact that it is decentralized and not controlled makes a lot of people consider trading bitcoin as gambling.
The price of bitcoin is volatile and fluctuates now and then. This means its value is not static, and every time you buy bitcoin, there is a very high possibility of its price changing (increasing or decreasing) when you want to sell it; hence, you either gain or lose money.
As a decentralized digital currency with limited supply, its value is determined by its users.
When bitcoin was first introduced in 2009, its price was just $0.0008, but as more and more people began to trade it, its value increased and now it is worth thousands of dollars.
Currently, not many people are well enlightened about how bitcoin and blockchain technology work, so a lot of people engaging in bitcoin trading are just speculators (day traders) who trade based on blind hope.
Speculative trading has to do with buying bitcoin with the expectation of a price increase, even though there is a risk of decrease. This means you put in money, watch the market waiting for the price to favor you, and then cash out.
According to Islam, such a form of trading is prohibited as it has every characteristic of gambling activity. If the price favors you and you make a profit, you have made easy money because you did nothing but “watch” and “hope.”
However, not all bitcoin trades are based on speculations. You can trade bitcoin without a decision based on probability. That is if you do your homework before investing and not just throw in money blindly.
Another aspect of bitcoin trading that raises a debate is the use of margins and leverages.
Margin And Leverage Trading
Margin and leverage are different but still interconnected. With margins and leverages, you trade using a percentage of a position while controlling the entire position. For instance, a position is valued at $20,000; you can deposit 10% of that amount, which is $2,000, and trade with $20,000.
After trading, you pay back the remaining 90% and keep whatever profit you make. Trading using margins and leverages is not permissible in Islam because it involves making money with money that you do not own.
According to Islam, bitcoin trading is considered more haram than halal though there is always the debate. What is essential to consider is whether your bitcoin trade is a gamble or an investment.
A lot of bitcoin traders trade on just speculation, which is almost the same as gambling and thus haram. The majority, they say, carries the vote; hence, many Islamic scholars consider bitcoin trading to be total haram.
Trading bitcoin is halal if you come up with a trading strategy and do not trade on probabilities. Coming up with a trading strategy requires that you put in work, which reduces risk. That way, your bitcoin trading as a Muslim is more like investing rather than gambling.
It would be best if you endeavored to trade with your money and avoid trading using margins or leverages. Both are entirely impermissible according to Islamic laws. As mentioned earlier, people who understand bitcoin and blockchain technology are not many, so there are more speculators than strategists.
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