Cryptocurrency is Property Under Hong Kong Law

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Last week was a milestone for crypto laws in Asia. According to Hong Kong lawmakers, cryptocurrencies will be treated as a property from now on. That’s the decision a Hong Kong court has brought after analyzing the controversial Gatecoin case. Gatecoin was found in 2015 and closed operations in early 2019, with liquidators securing its crypto assets in 2022.

A year later, the Hong Kong law has ruled that cryptocurrency is property in Hong Kong. While Mainland China regulators have imposed a general ban on crypto trading, the mainland’s judicial position on Bitcoin’s legal status is in line with Hong Kong’s new ruling.

A Major Crypto Milestone

The court’s decision to make cryptocurrencies property under Hong Kong law is directly tied to Gatecoin. For those unaware, Gatecoin was registered as a cryptocurrency exchange company in 2015. At the time, the market still didn’t had any rules and regulations to follow. However, four years later it wound up, with liquidators appointed to Gatecoin shortly after.

It took three years of research and analyzing the situation for them to recover and secure cryptocurrencies that belonged to Gatecoin. The value was somewhere in the HKD140 million range, which is a lot of money. But, there was a bit of a problem – liquidators were not sure how to legally recognized cryptocurrencies, which sparked Hong Kong courts to analyze the situation.

Gatecoin traded over 45 cryptocurrencies on its platform, and it created a lot of headaches for the liquidators. They were looking to answer two questions:

• Were the cryptocurrencies held on trust by Gatecoin for the benefit of its customers?
• Are cryptocurrencies property? This is an issue that’s pursuant to Hong Kong’s insolvency legislation, where liquidators have an obligation to take into custody all the property of a company upon wind up.

The law wasn’t clear on the cryptocurrency part. Furthermore, Hong Kong’s legislation doesn’t clearly define property. It’s a very broad and inclusive definition based on the definition established in the National Bank vs. Ainsworth case. The court based its decision on whether this ruling could apply to cryptocurrencies. According to the Ainsworth case, a four-prong test was performed, proving that cryptocurrencies were definable, identifiable by third-parties, capable in their nature of assumption, and have a level of stability which made them property under Hong Kong law.

What Happens Next?

Unlike China which has banned cryptocurrencies and crypto mining in favor of its own digital currency, Hong Kong went another way. A number of new legal opportunities have opened up as a result. Under the new law, it is possible to create security interest over crypto as collateral. Cryptocurrencies are also capable of being a matter of trust which enables the separation of legal and equity. Also, liquidators can now seize cryptocurrencies into custody as property upon wind ups.

Similar juricidal pragmatism has been observed in some instances of mainland China’s legal rulings. The highly publicized Shanghai Court case proved that Bitcoin is a virtual asset, going against China’s view on cryptocurrencies. One thing is for sure – no matter how some countries try to ban Bitcoin, they all recognize crypto’s potential of being property or asset.