Last Updated: 19 April 2023
Hong Kong’s High Court has recognized cryptocurrencies as property in a landmark ruling that sets a legal precedent for the city-state. The decision was made in a case involving defunct crypto exchange, Gatecoin, which had been instructed to cease operations and undergo liquidation in 2019.
Gatecoin’s Crypto Holdings
Gatecoin’s liquidators sought court guidance on whether the crypto assets still held by the exchange belonged to customers “on trust” or could be made available to general creditors. Justice Linda Chan ruled that the exchange’s creditors’ funds were not held on trust but found that cryptocurrencies inherently possess all the qualities of property.
Crypto as Property
Chan’s ruling brings Hong Kong into line with other common law jurisdictions, confirming that holdings of cryptocurrencies constitute “property” that is on a par with other intangible assets, such as stocks and shares. The definition of “property” in Hong Kong is inclusive and intended to have a wide meaning.
The decision also means that cryptocurrencies are legally capable of being held on trust, meaning they can be held for the benefit of specific customers in the event of liquidation.
Regulatory Classification of Crypto
The US Internal Revenue Service also considers cryptocurrencies to be property. However, other regulatory agencies classify them differently, depending on their purview. The Securities and Exchange Commission considers many cryptocurrencies to be securities, while the Financial Crimes Enforcement Network instead treats companies handling digital assets as “money transmitters.”
Reviving Hong Kong’s Image as a Digital Assets Hub
The ruling comes as Hong Kong seeks to revive its image as a digital assets hub. During the recent Web3 Festival conference, Hong Kong central bank executive director, Clara Chan, said, “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.”
Hong Kong’s recognition of cryptocurrencies as property is a significant development for the digital assets industry, particularly in the region. The ruling clarifies the legal status of cryptocurrencies in the event of liquidation and brings Hong Kong into line with other common law jurisdictions. It also highlights the importance of regulatory clarity in the fast-evolving world of digital assets.
Investors interested in cryptocurrencies can take note of Hong Kong’s recent recognition of digital assets as property, which provides greater clarity on the legal status of cryptocurrencies in the region. Platforms like Bitcoin Future and Italian Formula offer access to a range of digital assets, allowing investors to trade and potentially profit from the price movements of cryptocurrencies like Bitcoin and Ethereum. As the digital assets industry continues to evolve, it is important to stay informed on regulatory developments and to consider the potential risks and rewards of investing in this emerging asset class.