Recently, we have witnessed the emergence of meme coins, such as PEPE, which have enabled investors to earn millions of dollars in profits. However, do these coins/tokens have strong fundamentals to justify their price surges? Let's explore meme coins further and examine their compatibility with Shariah principles.
What are Meme Coins?
Meme coins refer to coins/tokens associated with popular internet memes or current trends. They are often presented in the form of comical or animated memes and promoted by traders and meme enthusiasts. Investing in meme coins can be fun and exciting in the crypto industry, as it provides opportunities to interact with individuals that have similar interests and experience the thrill of investing in new and unique assets.
Shariah Perspective
Meme coins carry risks that contradict Shariah principles. These tokens lack clear utility and genuine use, making them questionable in meeting Shariah criteria. One of the fundamental principles in Shariah is that only assets with genuine benefits and utility can be traded. According to the Shafi'i school of thought, Imam Ibn Roslan (may Allah have mercy on him) mentioned in Matan Az-Zubad the conditions that need to be complied with in trading for the transaction to be valid. Some of these conditions are as follows:
- The item or asset must be pure.
- The item or asset must be beneficial.
- The item or asset must be deliverable.
- The item or asset must be owned by those involved in the transaction.
- The item or asset must have been seen.
These conditions must be fulfilled for a transaction to be valid. Hence, one of the mentioned conditions is that the asset must be beneficial. In general, we can adopt the approach stated by Mufti Faraz Adam (Chief Shariah Officer, Amanah Advisors) that if an asset is beneficial and its benefits are Halal, then it complies with Shariah. However, if an asset lacks utility or its benefits are not Halal, then it contradicts Shariah principles. Since meme coins do not possess clear utility and benefits, we are inclined to view such coins/tokens as problematic and raising concerns from a Shariah perspective. Therefore, it is advisable to avoid investing in such assets.
Moreover, he also stated that Shariah does not recognize assets without reasonable utility as valid subjects of sale. The wisdom behind this is evident, as it prevents people from selling useless items arbitrarily to unsuspecting and naive individuals. It aims to safeguard consumers from deception and exploitation. One of the goals of Shariah is to establish what is beneficial and prevent what is harmful.
Risks of Investing in Meme Coins
Investing in meme coins carries significant risks. Meme coins often lack legitimacy, with unclear project information, questionable organizations, absence of regulatory oversight, and a lack of genuinely useful products on the blockchain.
Due to their dependence on current trends, the price movement of meme coins relies on their ability to remain relevant and popular in the market. Furthermore, meme coins are often associated with pump-and-dump schemes.
Therefore, we are concerned that investors who engage in meme coin investments may fall victim to pump-and-dump activities, increasing market risks. In some cases, it may even be a form of fraud or a Ponzi scheme. There is a fiqhi principle that states:
"Preventing harm takes precedence over acquiring benefits."
Even though meme coins have the potential for significant profits, there is also a possibility of incurring substantial losses or falling prey to organized pump-and-dump or Ponzi schemes.
Moreover, instances have been reported where an investor successfully generated substantial profits from meme coins, amounting to millions of dollars. However, they faced difficulties in liquidating their coins/tokens, partly due to the lack of demand in the market.
Conclusion
In summary, at Sharlife, we consider meme coins problematic and raise concerns from both a Shariah and legitimacy. Furthermore, the risks are also high, so we advise avoiding investments in meme coins.