Hong Kong Court Recognizes Crypto as Property
Crypto has been classed as property in Hong Kong during a case regarding digital assets still held by defunct exchange Gatecoin
zhu difeng/Shutterstock, modified by Blockworks
Hong Kong’s High Court has deemed crypto to be property, marking the first time such a decision regarding digital assets has been made in the city-state.
The landmark ruling was handed down in a legal matter involving Gatecoin Limited, a crypto exchange that operated domestically from January 2015 until its demise four years later.
Gatecoin (not to be confused with Gate.io) had been instructed to cease operations and undergo liquidation after failing to retrieve funds lost in a disagreement with a payment services provider.
Following its closure in March 2019, Gatecoin’s liquidators sought court guidance on whether the crypto still held by Gatecoin belonged to customers “on trust” or could be made available to general creditors.
On trust refers to crypto held for the benefit of specific customers in the event of liquidation. In Gatecoin’s case, the crypto would be in a fiduciary capacity where the exchange is responsible for the custody and management before being returned.
While Justice Linda Chan determined that creditors’ funds on the exchange weren’t held on trust, her ruling found that crypto inherently has all the qualities of property, per domestic law firm Hogan Lovells.
Chan’s ruling also means crypto is legally capable of being held on trust, Hogan Lovells added.
Hong Kong’s definition of “property” is inclusive and intended to have a wide meaning, Chan reportedly said following the handing down of her ruling.
“The confirmation that holdings of cryptocurrencies constitute ‘property’ that is on a par with other intangible assets such as stocks and shares, brings Hong Kong into line with other common law jurisdictions,” Hogan Lovells said.
The US Internal Revenue Service also considers crypto to be property, although other regulatory agencies classify it differently according to their purview (the Securities and Exchange Commission considers many to be securities while the Financial Crimes Enforcement Network instead treats companies handling digital assets as “money transmitters”).
Clara Chan, Hong Kong central bank executive director, said during the region’s recent Web3 Festival conference: “We don’t want to stifle financial innovation but level the playing field among participants to unlock the potential for the industry. We look forward to harnessing Web3 for the force of good.”
Don’t miss the next big story – join our free daily newsletter.