In a dispute involving cryptocurrency owned by the now-defunct exchange Gatecoin, Hong Kong courts ruled that cryptocurrencies qualify as personal property.
The precedent-setting decision was rendered in a case involving Gatecoin Limited, a domestic cryptocurrency exchange that operated from January 2015 until its demise four years later.
After failing to recover funds lost in a dispute with a payment services provider, Gatecoin (not to be confounded with Gate.io) was ordered to cease operations and undergo liquidation.
The liquidators of Gatecoin, which ceased operations in March 2019, asked the court whether the cryptocurrency still held by the company belonged to consumers “on trust” or could be made available to general creditors.
On trust refers to cryptocurrencies held for the advantage of particular clients in the event of liquidation. In the case of Gatecoin, the cryptocurrency would be held in a fiduciary capacity, with the exchange accountable for its custody and administration prior to its return.
Hogan Lovells added that Chan’s decision also implies that cryptocurrencies can be legally held in trust. Chan reportedly stated following the delivery of her ruling that Hong Kong’s definition of “property” is inclusive and intended to have a broad scope.
The Internal Revenue Service also considers cryptocurrency to be property, although other regulatory agencies classify it differently based on their jurisdiction (the Securities and Exchange Commission considers many cryptocurrencies to be securities, whereas the Financial Crimes Enforcement Network classifies companies that handle digital assets as “money transmitters”).
The property ruling in Hong Kong comes as the city-state seeks to rebrand itself as a center for digital assets.
Clara Chan, executive director of the Hong Kong central bank, stated at the region’s recent Web3 Festival conference, “We do not wish to impede financial innovation, but rather to normalise the playing field among participants in order to unleash the industry’s potential. We anticipate utilising Web3 for the greater good.”
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