Hong Kong Court Rules Cryptocurrency as Property in Gatecoin Case

For the first time, a Hong Kong court has ruled that cryptocurrencies are property and can be held in trust. The Honourable Madam Justice Linda Chan determined in Re Gatecoin Limited [2023] HKCFI 91 that cryptocurrency has all of the characteristics of property inherently. With regard to acknowledging the proprietary nature of digital assets, the judgment places Hong Kong squarely in line with numerous other common law jurisdictions. Read on. 

Justice Linda Chan rules cryptocurrency as property “capable of being held on trust” 

Gatecoin, a Hong Kong-based cryptocurrency exchange, operated from January 2015 until it was wound up by a court order in March 2019, leaving 102,600 creditors. In a recent case, the joint and several liquidators of the company sought directions from the court regarding the characterisation of cryptocurrencies held by the company and the allocation of currencies, including fiat currencies, to its customers. T

he liquidators wanted to know if the cryptocurrencies held were held on trust for the customers or “if no trust existed, the digital assets should be made available to the general body of creditors,”  according to the Hogan Lovells report. The exchange held crypto upwards of 140 million Hong Kong dollars ($17.8 million) in October 2022, the report said.

 A Hong Kong court has recognized cryptocurrency as property “capable of being held on trust.” The judge who presided over the case, Justice Linda Chan, stated that Hong Kong, like other common law countries, defines “property” broadly and is “intended to have a wide meaning.”

Similar decisions have been made in Mainland China, whereas the Internal Revenue Service (IRS) of the United States regards cryptocurrency as property for taxation. In the United Kingdom, a government-funded law commission discovered that under current English and Welsh law, cryptocurrencies can be categorized as a new sort of property.

The report also stated “While the court determined that cryptocurrencies are capable of forming the subject matter of a trust more generally, on the facts in this particular case it found that a trust had not been established,” 

The ruling to provide clarity in event of winding up

Insolvency practitioners in Hong Kong should now have a clearer understanding of the type and extent of a company’s digital assets in the event of a winding-up. 

The rejection of account holders’ allegations that their assets were kept in trust for them by Gatecoin, highlights the importance of the contractual bargain formed between the parties, even when new legal arguments are being decided.