Cryptocurrency recognised as property in landmark ruling
The recent judgment of Re Gatecoin [2023] HKCFI 91 made by the Court of First Instance in Hong Kong ruled that cryptocurrencies are proprietary assets, and claims can be pursued in case of violation of trust. This judgment reflects people’s growing awareness of the proprietary nature of cryptocurrencies and their importance in the financial sector. The case has significant implications for the treatment of cryptocurrencies and their legal status in Hong Kong.
The case revolved around a dispute between the liquidators of the now-defunct cryptocurrency exchange platform – Gatecoin and its former clients over the ownership of digital assets held by the exchange in various cryptocurrency wallets. The Court finally held that cryptocurrencies satisfy the definition of “property” and their ownership can be traced, even if they have been mixed with other assets.
The decision builds on a prior interlocutory judgment in Nico Constantijn Antonius Samara v Stive Jean Paul Dan [2019] HKCFI 2718, which affirmed that cryptocurrencies have proprietary value and their legal status as property is analogous to other recognised types of property.
The legal implications of Re Gatecoin [2023] HKCFI 91 are substantial as the judgement affects the treatment of cryptocurrencies in multiple legal contexts, including:
- Matrimonial: digital assets can possibly be traced and for determining whether they form part of the matrimonial assets.
- Private wealth disputes: clients may be able to claim beneficial ownership over their digital assets and that the platforms are holding those assets on trust.
- Insolvency: the ruling that crypto assets are properties may affect the way liquidators distribute these properties to clients during the winding up process.
While the rulings provide security for the stakeholders involved in cryptocurrencies transactions, they also pave the way for more comprehensive legal frameworks in the future to govern the use, trading, and storage of digital assets.
In gist, the court rulings that affirmed cryptocurrency as property is a landmark decision that recognises the legal rights of cryptocurrency holders and advances protection for digital assets. This case marks a significant milestone in fostering a secure environment for the development of digital assets in Hong Kong.
