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The High Court of Hong Kong has ruled that cryptocurrencies are property, setting a precedent for the city-treatment state’s of digital assets. The historic decision was made in a case involving Gatecoin Ltd, a local cryptocurrency exchange that ran from January 2015 until its closure four years later.
Cryptocurrency was classified as property during a case involving digital assets still held by shuttered exchange Gatecoin in Hong Kong
Gatecoin (not to be confused with Gate.io) was given the order to discontinue operations and go through liquidation after failing to recover money that was misplaced during a dispute with a supplier of payment services. As Gatecoin was shut down in March 2019, its liquidators asked the court for advice on whether the cryptocurrency it still had belonged to clients “on trust” or might be distributed to general creditors. In the event of liquidation, cryptocurrency kept on trust is held for the advantage of certain clients. In the case of Gatecoin, the cryptocurrency would be held in a fiduciary capacity, with the exchange in charge of custody and management prior to its release.
According to domestic law firm Hogan Lovells, Justice Linda Chan stated that cryptocurrency inherently possesses all the characteristics of property even if she found that the monies held by creditors on the exchange were not held on trust. According to Hogan Lovells, Chan’s decision also establishes the legitimacy of holding cryptocurrency on trust. Following the announcement of her decision, Chan reportedly stated that Hong Kong’s definition of “property” is inclusive and meant to have a broad connotation.
The affirmation that cryptocurrency holdings are “property” that is comparable to other intangible assets like stocks and shares aligns Hong Kong with other common law jurisdictions, according to Hogan Lovells. Although other regulatory bodies categorize cryptocurrencies differently depending on their areas of responsibility (the Securities and Exchange Commission classifies many as securities while the Financial Crimes Enforcement Network treats businesses that handle digital assets as “money transmitters”), the US Internal Revenue Service also views cryptocurrencies as property.
However, Hong Kong’s property judgement comes as the city-state works to restore its reputation as a center for digital assets. While speaking at the recent Web3 Festival conference in the area, Clara Chan, executive director of the Hong Kong central bank, said:
“We don’t want to hinder financial innovation, but level the playing field among participants to unlock the potential for the industry. We are excited to use Web3 as a force for good.”
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