Hong Kong court has recognised cryptocurrency as property

Photo of author

By Degen Lipsa

In Hong Kong, cryptocurrency was classified as property during a litigation involving digital assets still held by the defunct exchange Gatecoin.

The Hong Kong High Court has ruled that cryptocurrency is property, the first time such a ruling has been reached in the city-state.

The groundbreaking decision was made in a legal case involving Gatecoin Limited, a cryptocurrency exchange that functioned in the United States from January 2015 until its dissolution four years later.

Hong Kong Court legalizes Crypto as an asset.
Hong Kong Court legalizes Crypto as an asset.

After failing to recover cash lost in a dispute with a payment services provider, Gatecoin (not to be confused with Gate.io) was ordered to halt operations and liquidate.

Following the liquidation of Gatecoin in March 2019, the liquidators requested judicial direction on whether the crypto still held by Gatecoin belonged to consumers “on trust” or might be made accessible to general creditors.

In the event of liquidation, on trust crypto is stored for the benefit of individual clients. In the instance of Gatecoin, the cryptocurrency would be held in a fiduciary capacity, with the exchange responsible for its custody and administration until being returned.

While Justice Linda Chan decided that creditors’ monies on the exchange were not held in trust, her ruling stated that crypto naturally possesses all of the characteristics of property, according to domestic law firm Hogan Lovells.

According to Hogan Lovells, Chan’s decision also suggests that crypto can be legally held in trust.

Following the delivery of her judgement, Chan allegedly stated that Hong Kong’s definition of “property” is inclusive and intended to have a broad connotation.

“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 cryptocurrency to be property, though other regulatory agencies classify it differently depending on their jurisdiction (the Securities and Exchange Commission classifies many as securities, while the Financial Crimes Enforcement Network classifies companies that handle digital assets as “money transmitters”).

Meanwhile, Hong Kong’s property verdict comes as the city-state seeks to rebrand itself as a digital asset centre.

Clara Chan, executive director of the Hong Kong central bank, stated at the region’s recent Web3 Festival conference: “We don’t want to stifle financial innovation, but rather level the playing field among participants to unlock the industry’s potential.” We are excited to use Web3 as a force for good.”

Leave a Comment