In a recent court case in Hong Kong, the question of whether cryptocurrencies can be considered property and held in trust has been officially answered. The case, Re Gatecoin Ltd [2023] HKCFI 914, involved Gatecoin, a Hong Kong company that operated a cryptocurrency exchange platform. During its liquidation process, the court-appointed liquidators sought clarification on whether the cryptocurrencies held by Gatecoin were considered property held on trust or if they could be used to repay the company’s creditors.
The court first determined that the terms and conditions agreed upon by Gatecoin’s customers did not create a trust, meaning that the cryptocurrencies were considered assets belonging to Gatecoin. The judge then delved into the question of whether cryptocurrencies qualify as property, as the relevant legislation in Hong Kong does not provide a specific definition. To reach a conclusion, the judge examined legal precedents from various jurisdictions, including England and Wales, the United States, Canada, Australia, New Zealand, the British Virgin Islands, and Singapore.
Referring to the criteria outlined in the English case of National Provincial Bank v Ainsworth [1965] AC 1175, which stated that property must be definable, identifiable by third parties, capable of assumption by third parties, and possess some degree of permanence or stability, the judge found that cryptocurrencies fulfilled these requirements. The judge cited the existence of a unique public key assigned to each cryptocurrency wallet, the fact that only the holder of the private key can access and transfer the cryptocurrency, the widespread trading and recognition of ownership rights in cryptocurrencies, and the permanence and stability offered by the blockchain’s transaction history.
Consequently, the court determined that cryptocurrencies are considered property under Hong Kong law. While this outcome may not come as a surprise to many cryptocurrency enthusiasts, it provides a level of legal certainty for market participants and contributes to the growing recognition of cryptoassets in Hong Kong and the broader virtual asset industry.
Overall, the court’s decision in Re Gatecoin Ltd [2023] HKCFI 914 represents an important step toward acknowledging the legal status of cryptocurrencies and further establishing their place within the regulatory framework in Hong Kong.
