LONDON: Muslim countries should act fast to develop common regulatory, financial, and religious frameworks to capitalize on the global boom in cryptocurrencies, experts told Arab News.
They also stressed that those states who move first stand to gain the most.
Earlier this month, Bitcoin hit an all-time high — a massive $68,521 per coin — but just a week later, Indonesia’s National Ulema Council declared all cryptocurrencies haram (forbidden by Islamic law), citing the apparently speculative nature of investments in the currency-turned-commodities.
These two events are indicative of the wider global struggle taking place in crypto markets, as states grapple with this new form of currency and work to develop financial and regulatory frameworks that integrate them into existing systems.
And this is true, too, for the world’s Muslim states, who, combined, represent around 1.9 billion people worldwide.
Bashar Al-Natoor, Fitch Ratings’ global head of Islamic Finance, told Arab News: “In the Organization of Islamic Cooperation’s 55-plus states, the status and stand (of cryptocurrencies) varies substantially from one country to another, and even in some cases is inconsistent within the same country.
“This not only in their regulatory response but even in the understanding and basic terminology, let alone the level of advancements of the relevant ecosystem like regulatory frameworks, infrastructures.”
Al-Natoor explained that these basic inconsistencies across markets are made even “cloudier” by the integration of Shariah rulings into Islamic financial systems.
Just as the Indonesia’s religious scholar’s announcement that cryptocurrencies are haram muddied the waters for Muslim investors in that country, so too does the lack of scholarly consensus on the status of the currencies across the Middle East and elsewhere.
Al-Natoor explained that while scholars cite the currencies’ volatility, apparent lack of intrinsic value, high risk, and other factors as justification for prohibition, the use of cryptocurrencies also presents opportunities for Muslim nations.
He said: “Indeed, a number of OIC countries have begun to test this space and it is interesting to watch as regulation starts surfacing.’’
Among those leading the charge on cryptocurrencies are the UAE and Bahrain, Ibrahim Khan, the chief executive and co-founder of Shariah financial advisory firm IslamicFinanceGuru, told Arab News.
“Bahrain, in particular, has been a leader,” Khan said, while at the same time other countries, such as Pakistan, have made the trade of cryptocurrencies illegal.
And for Khan, “the fact of the matter is the cat is out of the bag … it’s pointless at this stage (to ban it).”
In January, Bahrain leapt forward by launching a state-approved Shariah-compliant cryptocurrency exchange platform available to residents of Saudi Arabia, the UAE, Kuwait, and Oman.
“By moving quicker, they can actually take a lot of the initial interest and money flowing through cryptos — a lot of crypto money has gone to Dubai and Bahrain, in particular.”
IslamicFinanceGuru’s cryptocurrency advice is one of the company’s most in-demand services, Khan explained, because they offer critical advice in an area with a lot of noise but little true direction.
“The reason why that page is popular,” he explained, “is because there isn’t really much educated analysis or fatwas (religious edicts) out there, other than very reactive fatwas saying ‘it’s all haram,’ or other more nuanced ones saying that it depends on the individual cryptocurrency.
“But nobody is actually bothering to tell people who are investing or trading what is actually allowed or not. There is a real dearth of leadership in this space from Muslim countries.”
But “this is the next big trend,” Khan continued, and so “the Muslim community as a whole needs to move a lot faster on offering clear guidance and clear lines of thinking on the Islamic side of things when it comes to cryptocurrency.”
He said that if Islamic countries took a uniform approach toward engaging with cryptocurrencies it could be “very positive.”
“A lot of people listen to what their government says, and if their government is making scary noises about it then they will typically avoid it … access in and out of cryptocurrency will not be as straightforward.”
But “governments saying: ‘we’re actually quite positive about this,’ would lead to a lot more access, and a lot more business in allowing people to get into this stuff,” said Khan, adding: “I would expect there to be a bit of a boom.”