The Hong Kong High Court has declared cryptocurrency to be property, the first time such a ruling has been reached in the city-state.
The groundbreaking decision was made in a case involving Gatecoin Ltd, a cryptocurrency exchange that ran locally from January 2015 until it closed down four years later.
After failing to recover money lost in a dispute with a payment services provider, Gatecoin was given the order to discontinue operations and go through liquidation.
After its collapse in March 2019, Gatecoin’s liquidators requested judicial assistance on whether the cryptocurrency it still held belonged to clients “on trust” or might be distributed to general creditors.
Cryptocurrencies held on trust are those that, in the case of liquidation, benefit certain clients. In the case of Gatecoin, the crypto would be held in a fiduciary capacity, with the exchange in charge of custody and management before being returned.
According to domestic law firm Hogan Lovells, Judge Linda Chan stated that cryptocurrency naturally had 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.
According to reports, Chan stated as soon as her decision was announced that Hong Kong’s definition of “property” is inclusive and meant to have a broad meaning.
According to Hogan Lovells, Hong Kong now aligns with other common law countries since it has been confirmed that holdings of cryptocurrencies are “property” that is on par with other intangible assets like stocks and shares.
Digital assets are considered property for tax purposes by the Internal Revenue Service (IRS) in the US. In other words, capital gains taxes apply to transactions involving digital assets, but tax deductions may be available for cryptocurrency losses. Moreover, a Chinese court has declared cryptocurrency to be property.
However, Hong Kong’s property judgment comes as the city-state works to restore its reputation as a center for digital assets.
We don’t want to stifle financial innovation, but rather level the playing field among players to unleash the industry’s potential. We look forward to using Web3 to further the cause of good, said Clara Chan, executive director of the Hong Kong central bank, during the recent Web3 Festival conference in the area.