Sheikh Shawki Allam, the Grand Mutfi, said the digital crypto-currency carried risks of "fraudulence, lack of knowledge, and cheating".
Bitcoin began last year below $1,000 (£737) but reached nearly $20,000 before the end of the year.
Then it lost more than 25% of its value inside a week, sparking warnings of a dangerous bubble.
The Grand Mufti said risks could arise because the virtual currency was not subject to surveillance by any centralised authority.
"Bitcoin is forbidden in Sharia as it causes harm to individuals, groups and institutions," the fatwa said, as reported by Egyptian daily Ahram
In August 2017, Egypt's first bitcoin exchange was opened. The crypto-currency was declared illegitimate by the authorities last month.
An adviser to the Grand Mufti, Magdy Ashour, told Egypt Today that Bitcoin was "used directly to fund terrorists".
Last month, a New York-based woman was charged with laundering Bitcoin and other crypto-currencies and wiring the money to help so-called Islamic State.
What is Bitcoin?
There are two key traits of Bitcoin: it is digital and it is seen as an alternative currency.
Unlike the notes or coins in your pocket, it largely exists online.
Secondly, Bitcoin is not printed by governments or traditional banks.
A small but growing number of businesses, including Expedia and Microsoft, accept bitcoins - which work like virtual tokens.
However, the vast majority of users now buy and sell them as a financial investment.
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