For most aficionados in the world of cryptocurrencies, the answer may have never been in doubt, but a court in Hong Kong in Re Gatecoin Ltd [2023] HKCFI 914 has formally held that cryptocurrencies can be property, and are capable of being held in a trust.
Gatecoin, a Hong Kong company wound up by the court in 2019, operated a cryptocurrency exchange platform, through which it came into possession of cryptocurrencies and fiat currencies for trading or withdrawal purposes. As a part of the liquidation process, the liquidators sought directions as to whether the cryptocurrencies held by Gatecoin were property that was held on trust by Gatecoin, or, if not on trust, whether the assets could be made available to creditors in the liquidation process.
After ruling that the latest terms and conditions entered into by the customers of Gatecoin did not create a trust, and that therefore the cryptocurrencies held were Gatecoin’s assets, the judge examined whether or not cryptocurrencies were “property”, noting that the term is not defined in either the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) or Interpretation and General Clauses Ordinance (Cap. 1). The judge examined several cases from other jurisdictions, including England and Wales, the United States, Canada, Australia, New Zealand, the BVI, and Singapore. Referring to the rules set out in the English case of National Provincial Bank v Ainsworth [1965] AC 1175, which provided that the requirements for property were that “it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability.”, and the New Zealand case of Ruscoe v Cryptopia [2020] NZHC 728, the judge noted that cryptocurrencies were capable of meeting these requirements:-
- Cryptocurrencies were definable, since the public key allocated to a cryptocurrency wallet was readily identifiable, distinct, and capable of being allocated uniquely to an individual account holder
- Cryptocurrencies were identifiable by third parties as only the holder of a private key is able to access and transfer the cryptocurrency from one wallet to another
- Cryptocurrencies were capable of assumption by third parties, as they are traded widely, an owner’s rights to a cryptocurrency is respected, and cryptocurrencies are a desirable investment
- Cryptocurrencies have some degree of permanence or stability, as the life history of a cryptocurrency is available in the blockchain.
Given the above, it was held that cryptocurrencies are property for the purposes of Hong Kong law.
As noted, this position would not be surprising to most practitioners and market participants, but by providing a modicum of legal certainty for market participants, the case represents a welcome step in the further recognition of cryptoassets in Hong Kong, as well as the virtual asset industry as a whole.
The case can be found here.
