For most enthusiasts in the cryptocurrency world, the answer may never have been in doubt, but it’s a court in Hong Kong at Re-Gatcoin Ltd [2023] HKCFI 914 officially considered that cryptocurrencies can be property, and they can be held in a trust.
Gatecoin, a Hong Kong company that was insolvent by court in 2019, operated a cryptocurrency exchange platform, through which it acquired cryptocurrencies and fiat currencies for trading or withdrawal purposes. As part of the liquidation process, the liquidators sought guidance as to whether the cryptocurrencies held by Gatecoin were property held by Gatecoin in trust, or if not in trust, whether the assets could be made available to creditors in the liquidation process.
After ruling that the most recent terms and conditions entered by Gatecoin customers did not create a trust, and therefore the cryptocurrencies held are Gatecoin assets, the judge examined whether or not the cryptocurrencies were “property,” noting that the term was not defined in either the Companies (Liquidation and Judgments) Ordinance. Miscellaneous) (Chapter 32) or the Decree of Interpretation and General Provisions (Chapter 1). The judge has heard several cases from other jurisdictions, including England and Wales, the United States, Canada, Australia, New Zealand, the British Virgin Islands and Singapore. With reference to the rules set forth in the case of the English language National Provincial Bank v. Ainsworth [1965] AC 1175, which stated that property requirements were “It must be identifiable, recognizable by third parties, capable in its nature of being assumed by third parties, and have some degree of permanence or stability.The New Zealand case Roscoe vs. Cryptopia [2020] NZHC 728, the judge noted that cryptocurrencies were able to meet these requirements:-
- Cryptocurrencies were identifiable, since the public key assigned to a cryptocurrency wallet was easily identifiable, unique, and able to be uniquely assigned to an individual account holder.
- Cryptocurrencies can be recognized by third parties because only the holder of the private key is able to access the cryptocurrency and transfer it from one wallet to another.
- Cryptocurrencies have been able to be assumed by third parties, they are widely traded, the rights of the owner in the cryptocurrency are respected, and cryptocurrencies are considered a desirable investment.
- Cryptocurrencies have a certain degree of permanence or stability, as the life history of the cryptocurrency is available in the blockchain.
Given the above, it has been confirmed that cryptocurrencies are property for the purposes of Hong Kong law.
As noted, this situation would not be surprising to most practitioners and market participants, but by providing a modicum of legal certainty to market participants, the case represents a welcome step in further recognition of crypto assets in Hong Kong, as well as the virtual assets industry as a whole.
The case can be found here.
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