Inside Egypt’s cryptocurrency market

Cairo - 26 January 2018: Shattering many hopes and dreams for easy, quick money, Egypt’s Grand Mufti Shawki Allam issued an official fatwa (Islamic ruling) on January 1
forbidding the trade of bitcoins and deeming them haram (against religious teachings).

The statements came after wide controversy between investors looking to ride the bitcoin wave and governments reluctant to legalize the cryptocurrency that saw significant yields over the past year.

Allam’s councellor Magdy Ashour had also issued a statement saying that bitcoins are not regulated by any official entity or the Central Bank of Egypt (CBE) and so carry many risks and can be used to finance terrorism. He added that Islam stipulates that commercial and trade transactions be governed by contracts and clear rules, which is not the case with bitcoins. The same concerns had earlier been echoed by Saudi and Turkish religious figures.

More than three months ago, the Central Bank of Egypt had also declared a firm position toward dealing in virtual currencies, the most important of which is the bitcoin.

The CBE emphasized that currently, there is no intention to recognize it. Despite this, there is a booming informal cryptocurrency market, with some companies buying and selling bitcoins without a license—a situation comparable to the dollar black market that

Egypt had struggled against before the flotation of the Egyptian pound. But internationally, many major companies like PayPal, Microsoft, Dell and PwC havem
since 2014, started to accept bitcoin in their transactions.

Goldman Sachs is even said to be in the process of starting a cryptocurrency trading
desk to deal with currencies like bitcoin, according to Bloomberg. Forbes magazine also
named it the best investment of 2013 and it topped Bloomberg’s currency tables in 2015.

This mysterious market, while attractive to many, is also a cause for concern as nobody is able to trace it; either sellers or buyers. The bitcoin is a virtual currency without any physical representation; it is not monitored by any central bank in the world and can’t be traced back to the origin. That, many experts say, leaves room for using it to fund illegal operations, including terrorist attacks.

Bitcoins are still considered risky, however, by many investment advisors because they can be lost if not properly secure or hacked and stolen, especially given banks’ reluctancy to regulate and secure them. In fact, just last month, hackers stole $70 million worth of bitcoins off cryptocurrency mining service NiceHash.

But despite warnings issued by central banks worldwide, the demand for this currency soared globally. Now, a single bitcoin is equivalent to more than $13,500, down from $17,000 in November but up from only $1 when it was introduced in early 2009 and less than $1,000 earlier in 2017. This means that anyone who owned this currency at the beginning of the year had a profit margin exceeding 1,000%, which cannot be made in any other commercial activity in the
world.

Bitcoin in Egypt

In mid-August, two people, Amr Khalil and Omar Abdel Rasoul, said that they were close to launching the first bitcoin transaction platform in Egypt, Bitcoin Egypt. They said they submitted their papers to the government, saying that it was going to be a stock exchange market.

However, the Financial Regulatory Authority promptly denied the news, saying that no new stock markets shall be launched except the one the government is launching; a commodities exchange. Back then, the CBE also emphasized that there is no plan to allow transactions using cryptocurrencies in Egypt.

These statements marked the end of any legal bitcoin transactions in Egypt. The informal bitcoin market was, however, ready to boom with transactions. This black market was established on social networking groups, which are difficult to track or monitor, just like the bitcoin itself, as it is impossible to know its buyers or sellers.

If you browse Facebook groups, you will find a huge number of groups about bitcoin. These are the places where bitcoin sellers find buyers and vice versa. Each seller sets the price for their bitcoins, and both buyer and seller agree on method of payment. It could be through a direct bank transfer to any Egyptian bank, a phone cash service or a post office money transfer.

Because money transfers are personal, that is, from one person to another, no state apparatus can track the process of buying and selling this cryptocurrency at all.

One of these pages is called B. E., but it is not an active group constantly publishing new posts. Posts on this page date back to 2012 and 2015, but you will find many recent comments on these old posts, made by people who want to buy and sell bitcoins.

Another one is a closed group A.B.C, which was created only one year ago, but has already garnered 27,830 members and in just one day, there were 1,080 posts published on the group.

Business Today Egypt made attempts to contact the page admins or moderators, but at
press time had not received an answer. It is worth noting that the page founder A. K. had
published a post dated November 9 on his personal Facebook profile saying that he quit dealing in bitcoin.

The post read, “After seven years of working with online currencies, and four years of working with cryptocurrencies and bitcoin, I have decided to fully quit. I apologize to
everybody. It has been an honor knowing you all, and it would be an honor to stay in touch, but without discussing online currencies of all kinds. Unfortunately, I will not be able to reply to private messages I get regarding this.”

One comment on this post speculated that the group founder must have been tracked
by the Public Funds Crime Investigation Office. This could indicate that the Office is actively pursuing those dealing in this currency in Egypt.

The bitcoin network Because dealing in crypto-currencies does not happen in one particular country or region, and since nobody can identify bitcoin owners
in the world, there are many international platforms where bitcoin owners, buyers and sellers register. Through these platforms, they get to know each other. One of these platforms is L.B., where you will find many buyers and sellers from Egypt.

The platform allows people to pay and transfer money in exchange for bitcoins. Most of these transactions are done through bank transfers, using the buyers’ and sellers’
own bank accounts. This means that black market bitcoin money is transferred through
fully legal means; local banks, without anybody knowing where this money goes.

An ex-bitcoin broker, who chose not to reveal his name for fear of harassment, says that deal ing in bitcoin in Egypt happens only in “a black market, nothing formal at all.” He adds that, “since it is informal, and because there are no ground rules in this market, frauds are committed every day.

The law does not apply to what does not exist. Since there are no permits or licenses that can be issued for this commercial activity, many companies claiming to deal in
bitcoins do not exist in reality. They are nothing but Facebook pages, selling delusions.”

When asked why he stopped dealing in bitcoin, he said, “I found that the activity is all
about fraudulent operations done in a black market. Some people work with integrity, but as long as the government will not legalize bitcoin, I will not undertake an illegal activity in Egypt and face the legal consequences.”

There are also so-called “companies” that deal in bitcoin, whose primary role is helping
potential buyers start a “wallet” in their name for their cryptocurrency of choice. They
also provide them with the buying and selling services on their behalf, in exchange for
an agreed-upon commission, a “brokerage.” It even allows clients to transfer the money they will pay to buy cryptocurrencies in dollars or Egyptian pounds, and through any suitable transfer method.

One of these companies is promoted on Facebook by bitcoin dealers as a safer option than dealing with individuals.

The company operates in Egypt and Saudi Arabia, according to its website, functioning through bank transfers to accounts registered under an individual’s, not a company’s, name.

The company provides technical support for its clients through a chat service. Business Today Egypt used the service to request buying bitcoins and a customer services
representative in Saudi Arabia responded promptly. He first asked us why we want to buy bitcoins then proceeded to say that buying it in Egypt is extremely easy.

He explained the nature of dealing in the currency, and that he would need to know the client perfectly well to open a wallet for them and advised us to start with a small amount at first. He recommended an e-wallet that includes two crypto-currencies, bitcoin and Ethereum and to sign up for online payment services. The money to start up the account
should be sent through a money transfer service or the post office.

He then added that the client needs to be fully aware of how to secure their account, as it could be hacked and all currencies could be stolen, emphasizing that even one’s closest friends could do that.

We asked if we could use bitcoin to buy goods in Egypt, but he said no. However, he said we could sell our bitcoins and benefit from its value in dollars.

When we asked about the company’s address, the representative said the company had three branches in Egypt but never gave an address, simply said that it is located in Hadayek el-Ahram, Giza.

The website also doesn’t carry specific information about their activities and says nothing about shareholders, trade name, date of establishment or any other information.
After research with various government entities, we can safely claim that the company was not registered with any authority in Cairo or Giza.

Sherif Sami, investment expert and former director of the Financial Regulatory Authority,
which regulates non-banking finance, says that some companies undertake certain activities without a license; including recruitment of funds operations like Al-Rayyan and Al-Saad.

Bitcoin dealers, however, cannot be considered operating recruitment of funds, but is rather brokerage. He adds that cryptocurrencies, including bitcoins, are risky and shouldn’t be allowed.

Under the state’s nose

Reda Abdel-Moaty, current deputy director of the Financial Regulatory Authority, had previously declared that no company would be allowed to establish a bitcoin stock exchange in Egypt.

“These companies are undertaking activities without a license, but the Authority maintains no jurisdiction over them. It is the CBE that does, as this is a banking activity. If we receive any complaints, we will refer them to the proper authorities,” Abdel-Moaty tells Business Today Egypt.

Magdy Nabil, the head of the stock exchange department at the Financial Regulatory Authority, agrees, adding that the department did not receive any complaints against companies undertaking these activities. “When some individuals announced the establishment of a bitcoin stock exchange (which we fully rejected), we notified the security apparatus, that is, the Public Funds Crime Investigation Office and the
Anti-Money Laundering Administration,” Nabil adds.

Those found to be dealing in bitcoins can face charges of facilitating smuggling money
and illegal seizure of money. General Farouk Al-Maqrihi, former undersecretary
of Public Funds Crime Investigation Office at the Interior Ministry, says that those
found to be dealing in bitcoins “could be penalized for fraud, as Forex brokers were, as per the currency trading law.”

Those found guilty could face three to 10 years in prison. Al-Maqrihi emphasizes that such currencies could be used to fund terrorism, as their owners cannot be identified. He says he previously researched this issue and warned the Public Funds Crime Investigation Office about it.

However, he says there has been great difficulty finding evidence to charge dealers, as they exchange the currency in closed groups on social networking websites, and these are difficult to track.

The CBE’s Money Laundering Administration monitors new clients’ accounts for a
certain period only, until the funding source is traced, then they are no longer monitored,

Al-Maqrihi explains. Only if the Investigation Office receives a complaint from a member in these groups for falling victim to fraud can the group be tracked. Nabil adds that cryptocurrencies are banned by various central banks around the world, including
China, Russia, Lebanon and Morocco, and the UAE and Jordan issued warnings
against it.

Although there are many stores that accept bitcoins as a method of payment in the
USA, the instability of its value within only 24 hours led the Federal Reserve Board to issue strong warnings against it at the beginning of December, calling cryptocurrencies, “a danger to the banking system and a fraud tool.”

Al-Maqrihi calls on the CBE and the House of Representatives to issue a law banning dealing in this currency and penalizing those who do, hoping this law would act as a strong deterrent to them.

“This is a new money laundering crime wreaking havoc upon the Egyptian economy.
The CBE and the Parliament must be alerted to this,” Al-Maqrihi says.

Amr Al-Gohari, the House of Representatives’ Economic Committee undersecretary, says that a law penalizing those dealing in bitcoin can be passed after consulting with the CBE.

He calls for a meeting between the Economic Committee, CBE and Ministry of Finance representatives to discuss the gravity of the situation and talk about all its different aspects, then take all necessary procedures if it is proven that the Egyptian economy will be damaged by these transactions.

He adds that it is not enough to prohibit dealing in bitcoins but that there has to be a law criminalizing it to end the black market.