Cryptocurrency and religion: bitcoin’s use in islamic finance

Abstract

Bitcoin utilizes the technology of a Peer-to-Peer (P2P) data network transaction logging system known as a Blockchain, to be transferred, bought and sold without the need for authentication and verification of a third part. It is therefore a Cryptocurrency, as well as lesser known ones such as litecoin, worldcoin, solidcoin, ixcoins, coinbuck, betacoin, tenebrix. zcash, to name a few among the more than a thousand in existence today. One of its basic features is that they do not have a central authority responsible for the settlement and clearing of transfers made through institutionalized mechanisms. Due to the growing popularity and importance of Bitcoin, investors and researchers have recently begun to evaluate Bitcoin from the perspective of Islamic business, economics and finance, where interest collection, uncertainty and speculation practices are reprehensible in light of Shariah or Law. Islamic This article explores the possibilities of using Bitcoin as a portfolio optimization strategy for Islamic fund managers. To achieve the research objective, three econometric modeling were used: DCC-GARCH (Dynamic Conditional Correlation), CWT (Continuous Wavelet Transform) and MODWT (Maximal Overlap Discrete Wavelet Transform). The results indicate that Bitcoin and Shariah stock indices are low and negatively correlated, suggesting that Islamic stock investors may benefit from Bitcoin diversification and that the fundamentals of such currencies may be further investigated for the benefit of Islamic capital markets.