Before it can be concluded whether shorting crypto is halal or haram in Islam, we must first look at what shorting crypto is. Bitcoin shorting is the act of selling a cryptocurrency with the belief that its value will decrease and you will be able to repurchase it at a lower price. Traders can then profit from the price difference in the market. Short-selling turns the traditional slogan of “buy cheap, sell high” on its head;instead of buying low and selling high, the trader sells the asset first and then buys it back later.
In this situation, shorting bitcoin would be done to hedge a long exposure. If you currently hold bitcoin but anticipate it will decline in value in the near future, you may want to hedge your risks by short-selling the digital coin at the same time.
Is Shorting Crypto Shariah-Compliant?
Since Shariah prohibits short-selling, an increasing number of Islamic organizations and hedge funds claim to provide Shariah-compliant shorting solutions. Islamic short-selling is frequently portrayed as a great invention or important achievement in Islamic finance. In actuality, though, almost any contract may be ‘Islamised’ byutilizing current financial engineering techniques. The question is rather how high the transaction costs are and, more importantly, whether such mechanisms are Shariah-compliant or simply an unpleasant trick that undermines the goals of Islamic banking.
Short-selling adds to the stock market becoming a highly speculative market that damages the majority of individuals who engage init, even if done in an allegedly Shariah-compliant manner. As a result, before issuing a Shariah judgment on the validity of short-selling or seeking to Islamize it, it is vital to analyze the full truth of the case from a macro Shariah viewpoint.
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