Hong Kong Acknowledges Cryptocurrency As A Form of Property
Hong Kong’s High Court has passed a groundbreaking decision by recognizing cryptocurrency as a form of property, marking it the first time such a ruling has been made in the city-state.
The verdict came as part of a legal case 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 the law firm Hogan Lovells, Judge Linda Chan, who presided over the case, stated that cryptocurrency possesses property attributes.
The court concluded that it was reasonable to adopt the same reasoning used by other jurisdictions that recognize crypto as property and could, therefore, 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 usage in the city-state.
Chan further stated,
Like other common law jurisdictions, our definition of ‘property’ is an inclusive one and intended to have a wide meaning.
Additionally, Hogan Lovells has said that the recent ruling could help insolvency practitioners in Hong Kong better understand how to handle 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 judgments, whereas the United States Internal Revenue Service regards cryptocurrency as taxable property. In the United Kingdom, a government-sponsored law commission discovered that the existing laws in England and Wales can 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 services provider. During the liquidation process, the appointed liquidators sought court directions on whether the cryptocurrency held by Gatecoin should be regarded as property held on 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 held up to HKD 140 million (USD 17.8 million) worth of cryptocurrency.
After failing to recover lost funds as a result of a dispute with a payment services 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 matter of a trust more generally, on the facts in this particular case it found that a trust had not been established.
The report additionally stated that the ruling would help liquidators in Hong Kong significantly. This is because it would provide them with increased clarity and understanding regarding the appropriate treatment of digital assets held by the companies, especially during wind-down procedures.
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