Shariah Law Opens to Crypto Trading, but Full Adoption Highly Unlikely

Published on by Cointele | Published on

In this regard, according to a landmark announcement made by the Securities Commission of Malaysia's Shariah Advisory Council, trading of digital assets is now permissible by law within the country's borders.

To better understand how crypto fits in with the Shariah scheme of things, Cointelegraph reached out to Adlin Zulkefli, a Shariah designated officer representing Masryef Management House - an advisory firm on Islamic finance.

In her view, a normal crypto spot trade for investment purposes is deemed permissible by the Shariah code of finance.

"Shariah law is compatible with the digital asset token if it's recognized as an asset. Additionally, there should be underlying value or utility to the digital asset, the issuer's business or cause should definitely be guided by Shariah standards."

In general, Shariah-compliant digital assets can operate as any other conventional digital offering, but several key differences still exist, such as they cannot be used to make investments in companies in sectors that are not Shariah-compliant; certain requirements need to be met so that investors are treated equally; the inability of users to utilize conventional financing or invest in companies highly leveraged with conventional debt, and the requirement for oversight of investment activities and investments by a Shariah Board.

Shariah's financial guidelines are flexible in natureOn the subject of whether scriptural precedents can potentially impede the growth of crypto-based finance in the Middle East, Babak Behboudi, the CEO of fintech firm Synchronium, told Cointelegraph that Shariah rules have always been progressive and are constantly being updated by Islamic experts in accordance with the circumstances and advances surrounding any new technology.

While the stringent guidelines presented by Shariah law may have an influence on potential investors who may not be willing to enter this space due to these demands, a fully-compliant product will be more marketable than a conventional fund in Malaysia, as well as the Gulf Cooperation Council region.

A similar sentiment is also shared by Behboudi, who believes that in the near future, Shariah experts across every Muslim nation will be able to formulate a comfortable set of rules to resolve any unknown issues regarding crypto to make the novel asset class fully available to the global Muslim community.

Lastly, Martin believes that due to the simple fact that Shariah law is primarily concerned with the generation and preservation of wealth, digital tokens present Islamic governments with the promise of channeling capital to productive sectors, such as crypto, all while being rooted in principles like transparency and accountability.

Some areas tied with crypto still need more considerationWhile digital asset trading may be compatible with a vast majority of the Shariah guidelines in existence today, as far as the buying and selling of digital asset derivatives go, things can become much more complicated - especially since a vast majority of these offerings are highly speculative in nature and thus incompatible with the basic tenets of Islamic finance.

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