Investors still wary on cryptocurrency’s Shariah compliance

Cryptocurrency is a legit commodity that can be exchanged within the market, as long as it is not backed by ‘ribawi items’


DESPITE the growth of cryptocurrencies around the world, the digital assets investment is still low among Muslim countries including Malaysia, as people are wary of its compliance with the Islamic law.

Securities Commission Malaysia (SC) Shariah Advisory Council chairman Datuk Dr Daud Bakar said investors and people in the country need more time to understand cryptocurrency from the Shariah perspective.

This comes after the council, in July, advised that it is permissible for Muslim to invest and trade cryptocurrencies on registered crypto exchanges.

Daud said as cryptocurrency is not regarded as a legal tender, it is a legit commodity that can be exchanged within the market, as long as it is not backed by “ribawi items” like gold and silver — which are generally used as currency to measure value of items for sale and purchase.

“It is a medium of exchange, and we cannot stop people to use commodities as medium of exchange. It is as good as buying an e-ticket or commodities in the market,” he said at the SCxSC Fintech Conference 2020 which was held online yesterday.

“This new development can open up so many interesting areas in Malaysia, in which crypto can be deemed as investment assets where people can buy and hold for trading,” he added.

SC started regulating the country’s cryptocurrency industry in January last year, following the implementation of the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019.

So far, three cryptocurrency exchanges have been approved to operate in the country: Luno Malaysia, Sinegy Technologies and Tokenize Malaysia.

Several studies have been conducted to establish whether cryptocurrency trading is Shariah-compliant, including various research papers that have declared bitcoin as compliant with Shariah law.

Currently, the three exchanges are only allowed to trade bitcoin, ethereum and ripple. There are about 7,000 digital currencies in the market place, with bitcoin known as the mother of cryptocurrency dominating 60% of the market.

Since the exchanges are given full licence as the Recognised Market Operator, industry estimates that only 2% of the total 30 million of Malaysians have knowledge about the digital assets.

The Malaysian Reserve had previously reported that the safe haven asset has attracted many new investors since the Covid-19 pandemic outbreak in March, forcing partial lockdown enforcement in the country.

Moving forward, Daud said the SC has also made it possible for companies to issue the coin as a method of capital shares in the company, which is subjected to certain restrictions through its fatwa resolution.

“This also has opened up the people to take advantage of the crypto as a commodity or as an investment in the company,” Daud said.

“Moving forward, the potential of this currency is great as it comes with the growing digital economy of the world.

“We can even develop our own stable coin quite easily without any difficulty by the government and respective jurisdiction.

“We can have the coin backed by certain commodities, ventures or projects,” he added.

Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference. Stablecoins may be pegged to a currency like the US dollar or to a commodity’s price such as gold.