Many are still searching for an explanation for last week’s unprecedented crypto market rally. On Thursday, Bitcoin’s price shot up more than $1000 within an hour making it the fastest rise in the history of any market.
Coming in the backdrop of a general downward trend, the jump caught many by surprise. Several reasons have been advanced including the squeezing out of short positions to a large institutional investor.
But one potentially definitive announcement came from an Islamic scholar declaring cryptocurrencies as halal. This means that bitcoin and other cryptocurrencies are acceptable under Sharia law. It effectively opens up the market to the more than 1.6 billion Muslims worldwide. It is instructive that the announcement preceded the record price gains and the reason why there might be a link.
According to the study by Indonesia’s Muhammad Abu-Bakar, an Islamic legal expert, cryptos fit into the strict definitions of money under Islamic law.
This is by no means the only interpretation on the issue. Several clerics including the Egyptian grand mufti have declared a fatwa on cryptocurrencies for their potential to undermine government control and enable vices such as money laundering and terrorism financing.
The latest interpretation by Mohammad Abu-Bakar is based on the fact that cryptocurrencies are accepted as legal currency in Germany.
“In Germany, Bitcoin is recognized as a legal currency and therefore qualifies as Islamic money in Germany. In countries such as the US, Bitcoin lacks official legal monetary status but is accepted for payment at a variety of merchants, and therefore qualifies as Islamic customary money,” the paper titled “Is Bitcoin Halal or Haram: A Shariah Analysis,” says.
“Bitcoin is permissible in principle as bitcoin is treated as valuable by market price on global exchanges and it is accepted for payment at a wide variety of merchants,” the study reads in part.
“Moreover, many private individuals accept bitcoin as a medium of exchange in their private transactions,” it goes on to say.
Allowed as a Payment System
The study, however, advises against using cryptocurrencies for investment purposes.
“Crypto traders should not purchase cryptocurrencies for investment purposes. Rather, it is advisable to utilize cryptocurrency networks as a payment system in the cases where cryptocurrency network offer specific benefits and advantages over conventional systems.”
Currency without intrinsic value is prohibited in Islam. Uncertainty over the status of cryptocurrencies has meant that many Muslims have not participated in the market so far.
Contradictory interpretations will continue to be seen. The latest study is, however, a major endorsement by an Islamic sharia law expert and may well be driving a sizeable part of the Muslim community into embracing cryptocurrencies.
About one billion dollars worth of bitcoin was transacted on Thursday within an hour, the largest volume known in the market.
Some have speculated that a large institutional investor might have been responsible for the change in tide. Billionaire George Soros is said to have recently authorised the trading of cryptocurrencies from his fortune.
Venrock, a venture capital firm backed by the Rockefeller’s is also joining the industry that has so far been shunned by large institutional investors.
Large financial firms in Japan, a major trading hub, are also jostling for a position in the market. Monex Capital, Mitsubishi UFJ Financial Group and a host of others are acquiring stakes in cryptocurrency related firms as they position themselves to reap from the sector.
Venrock is said to have put its money in Coin Fund, a Brooklyn based cryptocurrency investor group.
It is hard to pinpoint the exact trigger for the surge. The semi-anonymous nature of bitcoin and other cryptocurrencies makes it hard to trace movements. All we can say is that the study might have played a big role in the surge.