Crypto Arbitrage Trading: Shariah Compliant?
Question:
Assalamualaikum Mufti Sahb I would like to enquire about arbitrage in Respect of cryptocurrency. For eg. South African exchanges sell and buy cryptocurrency at a higher rate thus would it be halaal for me to buy a bitcoin on an international exchange for R950000, transfer it to a South African exchange where its sold for about R970000, and take the R20000 as profit? Secondly South African sites like Ovex also provide these services for you where they give you the return. (https://www.ovex.io/products/arbitrage) Would investing with them be Halaal? JazakAllah
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 sincerely apologize for our belated response.
Your question refers.
The concept of crypto-arbitrage refers to trading for profit on the basis of market pricing discrepancies based on a digital asset traded in different jurisdictions. Essentially, the trader profits from market movements in pricing of digital assets. For example, the price of bitcoin could sell for a much higher premium in a third world country say Nigeria as opposed to United States of America due to a number of factors including liquidity, regulation and trading volume. There are different forms of crypto arbitrage including spatial 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.
In the specific scenario in reference, we would need to review the terms and conditions of the ovex platform for shariah compliance and also understand the actual cash flow process in determining the flow of funds from a financial structure perspective in terms of the actual arbitrage trade.
And Allah Ta’āla Knows Best
(Mufti) Ismail Desai
Chairman of 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.
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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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