The Hong Kong High Court has just ruled that cryptocurrencies are property and can be put into a trust. The landmark decision is seen to bring certainty and confidence to related businesses in the city.
The important ruling comes in connection to the liquidation case of Hong Kong crypto exchange Gatecoin. According to the South China Morning Post, crypto assets were generally perceived as property. However, such an interpretation came without any legal justification or support before the decision of the high court.
A Good Move to Attract Crypto Firms in Hong Kong’s Bid to Become a Regional Hub
The high court ruling in Hong Kong branding cryptocurrencies as property is expected to establish a positive legal precedence over issues related to trust arrangements and inheritance involving digital assets. The ruling effectually places cryptocurrencies such as Bitcoin, Ethereum, and other related digital assets on an equal footing with other intangible possessions such as stocks and bonds, bringing Hong Kong’s legal position in line with other common law jurisdictions.
The decision also effectively puts a major distinction between Hong Kong and mainland China, where the treatment of cryptocurrency vastly differs. The administrative region’s efforts to become a crypto hub are expected to be bolstered by the latest jurisprudence. With that, it should continue to attract the attention of Chinese exchanges or crypto-related businesses that were forced to relocate due to the rigid crypto crackdowns in China.
Positive Signs in China’s Recognition of Cryptocurrency Ownership
Cryptocurrency is not acknowledged as legal tender in China, leading to a Shanghai court ruling last year invalidating the sale of a car paid for with digital assets as they lack legal protection. Despite this, there have been some optimistic developments, with ownership of such assets being acknowledged in certain cases.
For instance, in 2019, the Hangzhou Internet Court declared that Bitcoin is a type of virtual property that is safeguarded by the law. Additionally, the Shanghai High People’s Court stated in January 2021 that Bitcoin has characteristics of virtual commodities and virtual property.
A Brief Background of the Gatecoin Case
In 2019, a court ordered Gatecoin, which was one of the earliest cryptocurrency exchanges in Hong Kong, to shut down. Over the course of six years, the company suffered numerous setbacks, including a hack in May 2016 that resulted in the loss of US$21.4 million worth of clients’ assets, as well as having its accounts closed by nine banks in the city.
Following its closure, the exchange sought the help of the court to recover funds from its former payment services provider. As such, the issue as to whether or not the crypto under Gatecoin should be considered a property held on trust was raised, leading to the recent court ruling.
Final Thoughts
The recent ruling by Hong Kong’s High Court recognizing cryptocurrencies as property is a major milestone for the city’s virtual asset industry. It brings much-needed clarity and confidence to related businesses and opens up new opportunities for the industry to flourish. With the decision, Hong Kong has aligned its legal stance on cryptocurrencies with other common law jurisdictions, making it an attractive destination for crypto firms.
The case of Gatecoin serves as a reminder of the challenges faced by cryptocurrency exchanges and highlights the need for greater security measures. Overall, the ruling is a step in the right direction for the virtual asset industry and is expected to have a significant impact on its growth and development in Hong Kong.