Cryptocurrency Trading Strategies: A Contemporary Shariah Compliance Review

Cryptocurrency Trading Strategies: A Contemporary Shariah Compliance Review

Question:

I am reaching out in connection with wanting to seek guidance in terms of an investment with a certain entity called Blue Asset. Kindly find Brochure and T&C explaining abit more of their structure. My request is specific to whether the USDt Income Plan to earn profit share on is Shariah Complaint ? 

Please can you refer me to the appropriate person who can help with this request.

Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

We would like to applaud you for your zeal and enthusiasm related to Shariah Compliant finance, business and economics.

We refer to the terms and conditions of Blue Asset.

We understand that Blue Asset offers several income products including: Flexi Income Plan, Flexi Smart Plan and Accumulation Fund.

We also understand that Blue Asset deploys a proprietary trading scheme to produce a return.

Cryptocurrency Trading and Shariah Compliance

There are various contemporary crypto-currency trading strategies including:

1. Crypto Arbitrage Trading

 

The concept of crypto-arbitrage refers to the profit exploitation of market pricing discrepancies on cross-jurisdictional exchange listings by traders. Essentially, a trader profits from the pricing mismatch due to a number of factors such as FX currency volatility and liquidity mismatch.

 For example, the price of bitcoin could sell for a much higher premium in a third world country say Nigeria as opposed to Canada due to a number of factors including FX liquidity, regulation and trading volume.

There are different forms of crypto arbitrage including spatial arbitrage, triangular arbitrage, cross currency arbitrage and decentralized arbitrage.

The permissibility of crypto arbitrage is premised on a number of factors including the underlying Fiqhi/jurisprudential Takyeef/characterization of the crypto traded itself, the underlying terms and conditions of the arbitrage and the nature of the arbitrage with leverage/without leverage. For example, if you consider BTC as a currency/Thaman or medium of exchange, then the rules of Bay al-Sarf/currency trading will be applicable. Certain arbitrage trading includes leverage with swaps and derivatives to hedge against downside risk.

 

 

Scalping:

Scalping is the practice of opening positions in line with a trend, often entering and exiting the market multiple times in a short period as it develops. Individual trades are held for just a few seconds – minutes at the most – so it is one of the most short-term strategies.

Range Trading

A trading range occurs when a market moves consistently between two prices or levels for a definitive period of time. Like trend following, which can be used on any time frame, range trading can be seen in all time frames, from short-term five-minute charts to long-term daily and monthly charts.

Unlike trend following, range trading sees traders going both long and short (at different times) depending on the position of the price within the range. Usually in trend following traders will go with the overall direction of the trend, and buy dips in a rising trend and sell rallies in a falling one.

By contrast, range trading allows a trader to do both, since by definition a price is moving between two clear levels and (on that time frame at least) is making no progress either upward or downward.

Position Trading

The practice of holding a position in crypto trading for a longer period of time is known as position trading. Position traders adopt a long-term perspective and may hold their positions for weeks, months, or even years.

Leverage Trading

Crypto leverage trading allows traders to borrow funds, enabling them to control positions much larger than their initial investment. By increasing exposure to market price movements, traders can achieve higher potential gains, which also significantly increases the risk of losses.

Margin Trading

Margin trading involves using funds in your trading account as collateral to borrow additional capital. It is the foundation of leverage trading, as the borrowed funds provide the necessary leverage.

There are various forms of margin trading such as isolated and cross margin.

Both margin and leverage trading are impermissible in general due to several reasons including the provision of interest based leverage financing.

We also understand that proprietary traders may also utilize various manipulative trading strategies such as stop hunting, wash trading, spoofing, sell-wall manipulation and bear raiding.  

Moreover, crypto proprietary traders also utilize various hedging mechanisms such as perpetual swaps, futures and options. These hedging mechanisms are impermissible according to Shariah.

We are conducting a detailed Tahqeeq Shar’ee at our Darul Iftaa related to the various forms of crypto trading and we will inform the public once we have concluded our Tahqeeq (research).

Blue Asset Crypto-Currency Funds – Shariah Compliance Review

We have reviewed the Blue Asset Terms and Conditions (T&Cs). We cannot comment on the shariah compliance of the underlying funds until we review the specific trading strategy of Blue Asset including the digital asset trading holdings for shariah compliance.

Moreover, we understand that the digital assets under the specific Blue Asset trading plan will be “hedged” as referenced under “Asset Retention and Finalization”.

In general, conventional hedging strategies and solutions are impermissible according to shariah.

Furthermore, we understand that the cancellation of the agreement may attract fees/penalties.

According to Shariah Law, monetary penalties (Ta’zeerat Maliyyah) in general, are impermissible. [1]

We advise you to refer to our detailed article on Shariah Compliant Investments: https://shariahbusiness.com/shariah-insights/what-is-a-shariah-compliant-investment

And Allah Ta’āla Knows Best

(Mufti) Ismail Desai

Shariah Board and Fatwa Committee,

Darul Iftaa, Durban, South Africa

 

DISCLAIMER: The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any organizations to which he may be affiliated with. The opinions and educational information proffered in this communication are based on the jurisprudential understanding and available knowledge of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another scholar may reach different juristic inferences and conclusions to those as expressed by the author. Whilst every effort has been taken to ensure total academic integrity and honesty, the author is open to corrective measures based on sound academics and juristic inferences. The Shari’ah ruling given herein is based specifically on the specific scenario in question.  The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage.  This answer may not be used as evidence in any court of law without prior written consent from the author.  Any or all links provided in our emails, answers and articles are restricted to the specific material being cited. Such referencing should not be taken as an endorsement of other contents of that website.

and Allah Ta'ala Knows Best

Mufti Ismail Desai
Darul Iftaa
Durban, South Africa

Disclaimer The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any organizations to which he may be affiliated with. The opinions and educational information proffered in this communication are based on the jurisprudential understanding and available knowledge of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another scholar may reach different juristic inferences and conclusions to those as expressed by the author. Whilst every effort has been taken to ensure total academic integrity and honesty, the author is open to corrective measures based on sound academics and juristic inferences. The Shari’ah ruling given herein is based specifically on the specific scenario in question. The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage. This answer may not be used as evidence in any court of law without prior written consent from the author. Any or all links provided in our emails, answers and articles are restricted to the specific material being cited. Such referencing should not be taken as an endorsement of other contents of that website.

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