Hong Kong recognizes cryptocurrency as a form of property
Hong Kong’s High Court has passed a landmark decision recognizing cryptocurrency as a form of property, marking the first time such a decision has been handed down in the city-state.
The ruling came as part of a lawsuit involving Gatecoin Limited, a domestic crypto exchange that operated between January 2015 and its eventual closure four years later.
According to an analysis of the ruling published by law firm Hogan Lovells, Judge Linda Chan, who presided over the case, stated that cryptocurrency has property attributes.
The court concluded that it was reasonable to use the same reasoning used by other jurisdictions that recognize crypto as property and therefore could be subject to a trust arrangement. This ruling clarifies the legal status of cryptocurrency in Hong Kong and paves the way for its wider adoption and use in the city-state.
Chan went on to say,
Like other common law jurisdictions, our definition of “property” is inclusive and intended to have a broad meaning.
In addition, Hogan Lovells has said that the recent ruling could help insolvency practitioners in Hong Kong better understand how to deal with digital assets. This decision brings Hong Kong in line with other jurisdictions that also consider crypto as property, like stocks or real estate.
Mainland China has made certain comparable assessments, while the United States’ Internal Revenue Service considers cryptocurrency taxable property. In the UK, a government-sponsored law commission discovered that the existing laws in England and Wales could categorize cryptocurrency as a form of property.
Better treatment of crypto assets by businesses
Gatecoin announced its shutdown and liquidation after trying to recover disputed funds from a former payment service provider. During the liquidation process, the appointed liquidators sought court orders as to whether the cryptocurrency held by Gatecoin should be considered property held in trust.
If no trust existed, the liquidators questioned whether the digital assets should be made available to the general creditors. As of October last year, the exchange had up to HKD 140 million (USD 17.8 million) in cryptocurrency.
After failing to recover lost funds as a result of a dispute with a payment service provider, Gatecoin, which operated from 2015 to 2019, was ordered to cease operations and undergo liquidation.
The report by Hogan Lovells suggested,
While the court determined that cryptocurrencies are capable of forming the subject of a trust more generally, it found on the facts of this particular case that a trust had not been established.
The report further stated that the ruling would significantly assist liquidators in Hong Kong. This is because it will give them increased clarity and understanding regarding the proper treatment of digital assets held by the companies, especially during liquidation procedures.
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