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UAE: Is cryptocurrency halal, legal? Experts weigh in

Recently, cryptocurrency supporters termed Bitcoin as the 'most Islamic form of money'

Published: Mon 30 Dec 2024, 6:00 AM

Updated: Mon 30 Dec 2024, 9:09 PM

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Photo: Reuters file

Photo: Reuters file

The rise in cryptocurrency exchange and trade has triggered questions regarding its compatibility with Shariah guidelines as well as its legal status in the UAE.

As of now, the Shariah stance in the country is that cryptocurrencies are "neither halal nor haram" and are "not recommended". This comes even as cryptocurrency supporters termed Bitcoin the “most Islamic form of money ever invented” during a conference in Abu Dhabi recently as reported by Khaleej Times.

Current Shariah stance

“Our current position is ‘tawaquf’; we can’t say it is halal or haram, but we say it is better not to engage in it,” said a (hotline) scholar from the UAE Fatwa Council. “It is a complicated issue because there are various ways you can analyse crypto currently.”

There are concerns about the speculated nature of its current use, “because its prices fluctuate and at quite large amounts overnight, so people are just jumping on to it, perceiving it as an investment”.

“While some people have benefited a lot from it financially … there are other premises at stake, so we don’t recommend it yet.”

From the Fatwa council’s perspective, it is not yet recognised as an official currency, however, the stance is subject to change if the government gives it official recognition, he added.

Bitcoin supporters

Supporters of cryptocurrencies argue that the Muslim world is “missing out” on the Bitcoin revolution.

Arish Ehsan, financial analyst, Shariah advisor and anti-money laundering specialist, said governments across the world are increasingly taking interest in Bitcoin. “That brings me to the next most promulgated argument in favour of Bitcoin – that it is out of any government’s control, in stark contrast to a fiat currency.”

Eventually, if it stays, every government will have a control over it, in varying degrees, he added.

Addressing comments that Bitcoin is more halal than fiat money which is created only when a new loan is issued and is therefore infused with riba – Islamically forbidden money exchange — he said: “Negative fallout of a flawed banking process has nothing to do with any specific currency or perceived currency. It would have a bearing on the economy as a whole and affect all currencies that are interchangeable, for that matter.”

While there are several people who made large sums of money while trading in cryptocurrencies, many have lost as well.

Before investing their savings in Bitcoin, people should “know the flip side of the coin to make informed choices instead of getting targeted on their FOMO (Fear of Missing Out)”.

Legal status

The UAE’s legal framework concerning cryptocurrencies is “complex”, said legal adviser Abdulrahman Al Nabhan.

While the use and mining of cryptocurrencies for personal purposes are permitted in the UAE, the Central Bank has not yet issued a specific legislation to govern or prohibit commercial crypto investments. “However, the absence of regulation does not imply it is absolutely permissible, because entities still require authorisation from relevant authorities to engage in any commercial activities.”

According to the expert, licences for crypto-related operations are currently limited to Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM). To be considered legally valid, contractual agreements and transactions must occur within these designated zones.

“We are seeing an increasing number of court cases where investors, having suffered financial losses, file lawsuits. Once it is established that the contract was signed outside the authorised zones, the investment agency is found liable, and the contract is declared void. In such instances, the court typically orders the return of the invested capital,” said Al Nabhan.

He cited a recent case involving a trading application specialising in digital currency for electronic games. Investors lost their capital and subsequently filed lawsuits after the game developers failed to complete the projects or deliver games of the promised quality.

He also cited a case that he dealt with involving a European-based investment company that has a representative office in Jumeirah Lake Towers (JLT). The representative office acted independently and signed an investment contract worth Dh200 million at the client’s residence in Al Ain.

“The investment initially showed positive results, then fluctuated, eventually leading to sustained losses,” Al Nabhan said. “We filed a lawsuit against the representative office and prevailed because the office was not authorised to operate outside of JLT. Consequently, the contract was declared invalid.”

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