Hong Kong Court’s Landmark Decision
A Hong Kong court has acknowledged cryptocurrencies as property that can be held in trust in a ruling involving the defunct crypto exchange Gatecoin1. In an analysis of the ruling published by the law firm Hogan Lovells, Judge Linda Chan reportedly said that crypto has property attributes. The court deemed that it was appropriate to follow reasoning applied by other jurisdictions that crypto was property and could form the subject matter of trust. Chan noted:
“Like other common law jurisdictions, our definition of ‘property’ is an inclusive one and intended to have a wide meaning.“
Aligning Hong Kong with Other Jurisdictions
According to Hogan Lovells, the new ruling can potentially give insolvency practitioners in Hong Kong greater clarity in terms of digital assets2. Confirming that crypto constitutes property similar to other assets like stocks aligns Hong Kong with other jurisdictions.
Gatecoin Case Background
The case involves Gatecoin, a Hong-Kong based crypto exchange that suffered a hack back in 2016, losing around $2 million in digital assets3. On March 2019, the exchange announced that it had received a mandatory liquidation order from a Hong Kong court.
Comparisons with Other Countries
In the United States, the Internal Revenue Service recognizes cryptocurrencies as property for federal tax purposes4. This means that principles applicable to property transactions apply to transactions using crypto. Meanwhile, a court has also recognized crypto as property in China5. Back in 2019, a decision made by the Hangzhou Internet Court recognized Bitcoin legally as digital property.
Hong Kong’s Crypto Hub Ambitions
As Hong Kong pushes its goal to becoming a global crypto hub, China’s state-affiliated banks are taking the opportunity to build partnerships and onboarding regulated crypto firms in Hong Kong6. The events unfolded despite a ban on crypto-related activities in China.