Are Crypto Futures Halal? 3 important considerations

Are Crypto Futures Halal? 3 important considerations

To answer the question are crypto futures halal or haram let’s start with answering the question: what are futures contracts anyway?

A futures contract is a financial agreement in which a buyer agrees to purchase an asset at a predetermined price at a later date.

These contracts are frequently used with commodities and securities and more recently with cryptocurrencies.

For example, a Bitcoin futures contract may stipulate the following:

The buyer agrees to buy 5 Bitcoin from the seller for $40,000 each in 6 months.

If the actual price of Bitcoin in 6 months is higher than $40,000, the buyer will benefit.

If the actual price is lower than $40,000, the seller will benefit.

So the question that suggests itself is:

Are crypto futures halal or haram?

Crypto futures often involve the following haram elements:

1. Charging Interest

Brokers may charge interest on loans they provide, interest on debt, known as riba, is prohibited in Islam.

2. Buying/Selling Debt

Trading debt is haram in Islam as it is considered a form of riba.

In a crypto futures contract, a financial obligation to buy or sell from a counterparty is established i.e. a debt, and therefore trading this debt is haram.

3. Cash settlement

The majority of cryptocurrency futures are cash-settled.

Cash settlement means an investor takes cash instead of physical delivery of the underlying assets upon settlement of the futures contract.

This means the involvement of the asset itself is not required.

Consider the following example:

I own a cash-settled futures contract that obliges me to buy 1 Bitcoin for $35,000. If the price of Bitcoin is $36,000 on the date of delivery, my futures contract is worth $1,000 to me. To settle, the counter-party simply pays me the value of my contract, $1,000.

Alternatively, if the price of Bitcoin is $34,000 on the day of delivery, the value of my contract is -$1,000. To settle, I pay the counter-party $1,000.

This is no different from a bet between the counter-party and me wherein we agree that if the actual price of Bitcoin is below $35,000, I will pay them the difference, and if it’s above $35,000, they will pay me the difference.

Simply put, with cash-settled futures contracts one party is betting the price goes up while the counter-party is betting the price goes down, and the existence of the asset is optional.

This is a form of prohibited Al-Maysir (gambling).

It meets the criteria for Al-Maysir which are:

Risk is being created without the prospects of any good or service being offered.

About Al-Maysir, the generous Quran says the following (translated into English):

O you who believe, intoxicants, Al-Maysir (gambling), sacrificing for idols and making decisions based on games of chance are sicknesses from the work of Satan, so avoid these things so you may prosper. Satan desires to create enmity and hatred among you through intoxicants and Al-Maysir and to stop you from praying and remembering Allah. So will you abstain from these things?


Summary: Are crypto futures halal or haram?

Crypto futures often involve interest, trading futures contracts is riba, and cash-settled futures contracts with no asset requirement are al-maisir.

So yeah, I’d stay away.

And Allah knows best.

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