Salam aleikoum,
Is it permissible to participate in crypto arbitrage which involves buying a cryptocurrency on one exchange and quickly selling it on another exchange for a higher price whenever there is a disparity in prices between the two exchanges (assuming the cryptos used in and of themselves don’t have haram elements in them)? I’m talking about manual arbitrage, the person doing manually each and every step, not trading bots or scripts handling the transactions. Something worth pointing out is that the trading/swapping of these cryptos wouldn’t be done kind for kind. Crypto arbitrage usually involves three steps (a.k.a triangular arbitrage) of buying and selling different coins to get to the desired outcome. One may end up with more of the same coin at the end of the process but they would have gone through different pairs of coins to get there.
Crypto arbitrage is done instantly (no delays), without margin (if the investor so chooses). It can be done on decentralized or centralized exchanges. To my knowledge, it is one of the primary mechanism in place for price stabilization of cryptocurrencies between markets therefore it serves an important role. Without it, unaware investors could buy a coin in one corner of the internet (on one exchange) at a higher price than it needs to be and that would leave them at a disadvantage, but the free market economy and the price arbitrage taking place would regulate such a discrepancy.
How can we reconcile the following hadith with modern reality:
‘Ubaadah ibn al-Saamit (may Allaah be pleased with him) said: The Messenger of Allaah (peace and blessings of Allaah be upon him) said: “Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salt for salt, like for like, same for same, hand to hand. If the types are different then sell however you like, so long as it is hand to hand.” Narrated by Muslim, 1587.
In reality, there can never be a time when cryptocurrencies can be exchanged hand to hand under any circumstance because of their digital nature. Have any prominent scholars addressed this issue already?
JazakAllahu khayran for your time