Is trading cryptocurrencies forbidden? A comprehensive analysis from an Islamic Sharia perspective

As the global spread of cryptocurrencies continues to grow, the issue of their Islamic legal ruling remains a topic of intense debate among scholars and Muslims seeking lawful profits. The fundamental question that arises is: Is trading these currencies permissible or forbidden? The answer is not absolute but depends on the nature of the trading, the currency itself, and the applied regulations.

The Decisive Difference: Day Trading vs. Long-term Investment

Day trading in digital currencies differs fundamentally from well-considered investing. The first process involves buying and selling currencies within hours or minutes aiming to benefit from rapid price fluctuations. This style of trading is characterized by high levels of risk and randomness.

In contrast, long-term investing focuses on selecting trustworthy projects that offer real services, with careful verification of their legitimacy and compliance with Islamic law.

Basic Shariah Principles for Financial Transactions

1. Absence of Haram Elements

Islam forbids Muslims from dealing with any digital currency associated with prohibited activities such as gambling, usury, deception, or money laundering. Allah the Almighty said: “And Allah has permitted trade and forbidden riba” (Al-Baqarah: 275).

He also said: “And cooperate in righteousness and piety, but do not cooperate in sin and aggression” (Surah Al-Ma’idah: 2). This principle requires Muslims to avoid supporting any project or currency that facilitates suspicious activities.

2. Avoidance of Gharar and Jahl

Gharar in Islamic law means ignorance or uncalculated risk in transactions. The Prophet صلى الله عليه وسلم said: “The Messenger of Allah forbade the sale of Gharar” (Narrated by Muslim).

Day trading relies heavily on random expectations and uncertain fluctuations, making it very close to forbidden gambling.

3. Rejection of Deception and Fraud

The Prophet صلى الله عليه وسلم said: “Whoever cheats us is not one of us” (Narrated by Muslim). In reality, many projects in the field of digital currencies have been used to deceive investors, necessitating thorough research before entering any investment.

4. The Comprehensive Islamic Principle: “No Harm and No Harmed”

Islam prohibits any transaction that causes harm to oneself or others. The Prophet صلى الله عليه وسلم said: “There should be neither harming nor reciprocating harm” (Narrated by Ibn Majah).

Extreme fluctuations in digital currency prices often lead to significant financial and psychological losses, which contradicts this fundamental principle.

Opinions of Trusted Shariah Institutions

Egyptian Dar Al-Ifta’s Position

The Egyptian Dar Al-Ifta issued a ruling that trading in digital currencies is not permissible, based on several reasons:

• The prevalence of Gharar and Jahl in the mechanisms of these currencies
• Price volatility with no real guarantees
• Widespread deception and fraud in related projects
• Clear contradiction with the principle of “No harm and no reciprocating harm”

Islamic Fiqh Academy’s View

The Fiqh Academy affiliated with the Muslim World League confirmed that trading in digital currencies requires in-depth and precise study for several reasons:

• The proliferation of Gharar, Jahl, and high risk
• Lack of actual ownership in many trading cases
• Some currencies are linked to activities that conflict with religious teachings

However, the academy did not categorically prohibit all currencies but emphasized the need for ongoing study and evaluation based on each currency’s nature and its freedom from Haram elements.

Saudi Senior Scholars’ Warning

Sheikh Abdullah Al-Mutlaq, a member of the Senior Scholars Council, clarified that digital currencies involve significant risks due to Gharar and sharp fluctuations. He warned Muslims against engaging in this field without a deep understanding of the legal and financial risks involved.

Legal Issues Related to Day Trading

Unintentional Support of Forbidden Activities

Some digital currencies are used to finance prohibited projects such as gambling, usury, or fraudulent schemes. Muslims may unknowingly contribute to supporting these activities, placing them in a legal dilemma. Allah the Almighty said: “And cooperate in righteousness and piety, but do not cooperate in sin and aggression” (Al-Ma’idah: 2).

Lack of Genuine Ownership

In day trading, transactions are often conducted via Contracts for Difference (CFD), which do not provide actual ownership of the currency. The Prophet صلى الله عليه وسلم said: “Do not sell what you do not possess” (Narrated by Abu Dawood). This form of trading lacks a strong Islamic legal basis.

Falling into Forbidden Acts Unintentionally

The rapid execution of trades may lead Muslims to buy a forbidden currency without verifying its legitimacy. The Prophet صلى الله عليه وسلم said: “Leave what makes you doubt for what does not make you doubt” (Narrated by Tirmidhi).

Practical Solutions and Shariah-Compliant Alternatives

Focus on Well-Considered Long-term Investment

Instead of quick speculation, Muslims can focus on long-term investments in trustworthy currencies and technologies that offer real services. Currencies supporting technological projects or improving Halal financial services deserve study.

Careful Verification of Currency Legitimacy

Reading the project’s whitepaper (Whitepaper) is essential. Research the origin, uses, and goals of the currency. Knowing information about the founding team and partners helps ensure there are no suspicious relationships.

Study the Project Team and Partnerships

Verifying the reputation of the team and associated partners provides indicators of the project’s seriousness and adherence to ethical standards.

Consult Trusted Shariah Authorities

Seeking opinions from qualified scholars and consulting with reputable Islamic institutions reduces the likelihood of errors.

Current Islamic Ruling

Day Trading: Forbidden

Day trading in digital currencies is currently not permissible for several integrated reasons:

First: It is based on quick profits through rapid trading without sufficient study of the currency’s nature or true project. This approach exposes Muslims to deep legal issues.

Second: It may lead to involvement in prohibited activities such as money laundering, gambling, usury, and hoarding.

Third: It may support projects that violate Islamic teachings, even unintentionally due to ignorance of their true nature.

Fourth: It directly conflicts with the principle of “No harm and no reciprocating harm,” as this type of trading often results in severe financial losses.

Not All Speculation Is Forbidden

It is worth noting that speculation in Islam is not inherently forbidden; rather, it is permissible when it meets correct conditions. If all Islamic conditions are fulfilled, there is no objection. But if these conditions are absent, it becomes invalid and not permissible.

Final Words

Money is a means to achieve stability and a decent life, not an end in itself. Muslims should seek lawful and pure earnings in all their dealings and avoid suspicions and prohibitions. Awareness of the nature and goals of investments is essential to avoid supporting activities that conflict with religious teachings.

The Prophet صلى الله عليه وسلم said: “Whoever leaves something for the sake of Allah, Allah will compensate him with something better.” Seeking lawful sustenance is the proper way to attain blessing in wealth and work together.

We ask Allah to grant us all lawful, pure sustenance, protect us from forbidden and doubtful matters, and guide us to obey Him in all our transactions and earnings.