An Islamic scholar has declared bitcoin permissible under Sharia Law, potentially opening up the cryptocurrency market to investment from 1.6 billion Muslims around the world.

The publication of the study into whether bitcoin is halal or haram preceded unprecedented price gains for bitcoin, which saw it’s value surge by more than $1,000 in less than an hour.

This has led some analysts to speculate that news of bitcoin’s Sharia law compliance may have contributed to the price spike.

The study, by Muhammad Abu-Bakar of Blossom Finance in Indonesia, explored the functionality of bitcoin and other cryptocurrencies to determine whether they fit with Islam’s strict definitions of money.

“Several recent fatawah issued by prominent Muslim scholars offered incomplete or contradictory opinions on the topic,” said Matthew Martin, CEO of Blossom Finance.

“With all the confusion out there, we wanted to offer clear guidance supported by solid research that benefits both laypeople and practitioners of Islamic finance.”

The study’s author points to the fact that bitcoin is recognised as a legal currency in Germany and therefore qualifies as Islamic money in that country.

“Bitcoin is permissible in principal as bitcoin is treated as valuable by market price on global exchanges and it is accepted for payment at a wide variety of merchants,” the study states.

“Moreover, many private individuals accept bitcoin as a medium of exchange in their private transactions.”

Bitcoin is "permissible" under Sharia law, a study on the cryptocurrency has found.(REUTERS)

Bitcoin’s dramatic price gains on Thursday, 12 April, have been largely attributed to a handful of actors who have significant holdings of the cryptocurrency.

In the space of an hour, more than a billion dollars worth of bitcoin trades were registered on exchanges - the largest one hour trade volume in history.

The semi-anonymous nature of bitcoin means it is not possible to determine who was behind the trades, however some analysts have speculated that the significant investment in bitcoin may have been influenced by the positive news.

The price of bitcoin can often be swayed by positive or negative news in the cryptocurrency space and this latest study may have had some influence in the recent rise and could help contribute to future gains.

“Many speculated that the sentiment around bitcoin was getting more positive, and that it may have been related to Sharia law compliance,” Olga Feldmeier, CEO of fintech startup Smart Valor, told The Independent.

“Others assumed there was unwinding of a large short-selling position. I personally think that this rise was due to a large institutional investor.”