Hong Kong court classifies digital assets as property

During the proceedings in the case of the bankrupt Bitcoin exchange Gatecoin, the Hong Kong High Court recognised digital assets as property. According to the local law firm Hogan Lovells.

After the platform’s closure, Gatecoin’s liquidators approached the court to determine who owned the remaining cryptocurrency held on the exchange.

The plaintiffs contacted 102,600 creditors, but only 1,132 of them proved ownership, which amounts to 75% of the debt. The liquidators asked whether they should keep the assets in trust or distribute them among creditors.

According to documents, as of 31 October 2022 the total value of funds blocked on the exchange exceeded HK$140 million (about $17.8 million).

Judge Linda Chan ruled that “the definition of property in Hong Kong is comprehensive and has broad significance, as in other jurisdictions.” In her view, in this case the clients’ cryptocurrency held by the bankrupt company fits this concept under several provisions of local law.

“Gatecoin could have used the cryptocurrencies stored in wallets under its control as the company saw fit, including for carrying out its own trades. At the same time, in financial reporting some funds were marked as personal assets, while client deposits were treated as liabilities,” the judge explained.

Hogan Lovells lawyers clarified that the court’s decision allows the liquidators to hold digital assets in trust. Going forward, they will rely on this classification of cryptocurrency when distributing assets.

Earlier in May 2022, the Shanghai court recognized Bitcoin as a digital asset under Chinese law.

Later, the Hangzhou court equated NFTs with virtual property, since they possess characteristics of value, rarity, control, and the ability to sell.