Gatecoin Goes Down, Crypto Goes Up: Hong Kong Court Recognizes Digital Assets as Property!

"Hong Kong Court Recognizes Crypto as Property in Landmark Case Involving Gatecoin Exchange, Hogan Lovells Reports"

Hong Kong’s legal system has taken a significant step forward in recognizing cryptocurrency as property that can be held on trust. Law firm Hogan Lovells reported on Wednesday that a Hong Kong court has ruled in favor of this classification in a case involving Gatecoin, a now-defunct cryptocurrency exchange. Justice Linda Chan, who presided over the case, stated that Hong Kong, in line with other common law jurisdictions, defines “property” broadly “intended to have a wide meaning.” This decision marks an important milestone for the cryptocurrency industry in Hong Kong, as it will provide greater clarity on how digital assets held by companies should be treated in wind-down procedures.

Gatecoin, a Hong Kong-based cryptocurrency exchange, announced its shutdown in 2019 after an attempt to recover disputed funds from a former payment services provider. Liquidators of the exchange sought directions from the court on whether the crypto held by Gatecoin should be treated as property held on trust or “if no trust existed, the digital assets should be made available to the general body of creditors,” according to the Hogan Lovells report. The exchange held crypto upwards of 140 million Hong Kong dollars ($17.8 million) in October 2022, the report said. The court ruled that cryptocurrencies are capable of forming the subject matter of a trust more generally, but in this particular case, it found that a trust had not been established. Hogan Lovells reported that the ruling would give Hong Kong liquidators “greater clarity” on how crypto assets held by companies should be treated in wind-down procedures.

This decision aligns with similar rulings in Mainland China and the United States. The U.S. Internal Revenue Service (IRS) treats crypto as property for tax purposes. In the United Kingdom, a government-funded law commission found that crypto can be classified as a new type of property under existing laws in England and Wales. The recognition of cryptocurrency as property held on trust in Hong Kong is a significant development in the country’s push for clearer regulations for the crypto sector, covering a wide range of assets and services.

The ruling could also attract capital to Hong Kong’s jurisdiction, which has been grappling with global regulatory uncertainty. Earlier this year, brokerage firm Bernstein praised Hong Kong’s approach to regulating crypto, stating that it could attract capital to the jurisdiction. Hong Kong’s recognition of cryptocurrency as property held on trust is a positive step towards regulatory clarity, which is essential for the growth and development of the cryptocurrency industry.

CoinDesk reached out to the Hong Kong judiciary for comment on the ruling, but no response has been received yet. The decision has been welcomed by the cryptocurrency industry and is expected to have a positive impact on the sector’s growth in Hong Kong. The ruling shows that Hong Kong is committed to providing a regulatory framework that supports innovation and growth in the cryptocurrency sector while protecting investors and ensuring compliance with existing laws and regulations.

In conclusion, the Hong Kong court’s recognition of cryptocurrency as property held on trust is a significant development in the country’s push for clearer regulations for the crypto sector. The ruling aligns with similar decisions in other jurisdictions and will provide greater clarity on how digital assets held by companies should be treated in wind-down procedures. The decision is expected to attract capital to Hong Kong’s jurisdiction and support the growth and development of the cryptocurrency industry. This is a positive step towards regulatory clarity, which is essential for the growth and development of the cryptocurrency industry in Hong Kong.

Martin Reid

Martin Reid

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