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Cryptocurrencies Hong Kong Legal Status: Navigating the Evolving Legal Landscape
- Erica So
- May 20, 2023
- 4 min read
Updated: Jun 2
The Cryptocurrencies' Legal Status in Hong Kong has undergone significant development following recent judicial decisions, providing greater clarity for investors, financial institutions, and digital asset participants. As Hong Kong continues its ambition to position itself as a leading global digital asset hub, legal recognition of cryptocurrencies plays a central role in shaping market confidence and regulatory certainty.
Hong Kong's Court of First Instance made a groundbreaking decision on 31 March 2023, declaring cryptocurrencies as "property" under Hong Kong law, and hence, subject to trust laws. This latest development marks a significant milestone in Hong Kong's ambitious plan to establish itself as a global digital asset hub. Moving from the grant of interlocutory proprietary injunctions over bitcoins held in an insolvent trading platform in 2019, to recognition of the proprietary nature of cryptocurrencies albeit it being “novel kinds of intangible assets”.
Why Should You Care?
The classification of cryptocurrencies as "properties" may not initially seem significant to the vast number of tech-savvy and risk-tolerant investors. However, the importance becomes evident when the question arises about the recoverability of these digital assets held in investor accounts, particularly in challenging times when the cryptocurrency firms managing these accounts face liquidation.
The crucial decision lies in determining whether cryptocurrencies qualify as property and can be held in trust for the account holders. This decision, in turn, determines whether the digital assets can be returned to the account holders or distributed among the creditors as deemed appropriate by the liquidators. Ultimately, the outcome can significantly impact the rights and interests of cryptocurrency investors during the liquidation process.
However, it is important to note that in this significant 2023 legal precedent, the Court did confirm that cryptocurrencies are indeed considered as assets and can be held in trust. Nonetheless, it is crucial to understand that the question of whether they are always held in trust is distinct and requires separate deliberation.
Are those cryptocurrencies in fact held on trust?
Linda Chan J acknowledged that “like other common law jurisdictions, our definition of ‘property’ is an inclusive one and intended to have a wide meaning.” Drawing from reasoning in other jurisdictions, the Court determined that cryptocurrencies fulfil requirements for being considered property, including definability, identifiability, the ability to be assumed by third parties, active trading, and a degree of permanence.
Consequently, it is deemed appropriate to regard cryptocurrencies as subjects capable of forming trust arrangements.
However, when determining whether Gatecoin Limited, the company under liquidation, actually held such cryptocurrencies on trust, it is essential to fulfil the principles of:
certainty of subject matter
certainty of objects
The Court must also establish a clear intention to create a trust relationship. In this case, Linda Chan J concluded that the necessary certainty of intention was lacking, and therefore rejected the argument that the cryptocurrencies were held on trust.
The absence of trust derived from the terms and conditions between Gatecoin and its customers, which:
did not create a fiduciary relationship
did not require segregation of assets
allowed assets to be pooled within the platform’s wallets
How Does the Ruling Affect the Legal Status of Cryptocurrencies in Hong Kong?
The Court’s confirmation that cryptocurrencies constitute property under Hong Kong law has significant implications.
Firstly, it provides enhanced legal certainty for participants in the digital asset market. Investors and institutions now have clearer recognition of enforceable rights under common law, including access to remedies such as injunctions and damages.
Secondly, the ruling aligns Hong Kong with other common law jurisdictions, including England and Wales, Singapore, and Australia, which have similarly recognised cryptocurrencies as property. This promotes greater consistency in cross‑border transactions involving digital assets.
Lastly, the decision reinforces Hong Kong’s position as a digital asset hub, signalling a supportive legal environment. This may encourage further investment, innovation, and institutional participation in the sector.
How Ravenscroft & Schmierer Can Help?
Ravenscroft & Schmierer advises clients on the evolving Cryptocurrencies Legal Status in Hong Kong, including issues relating to ownership, trust structures, and regulatory classification. The firm provides guidance on digital asset disputes, insolvency considerations, and risk management within the Hong Kong legal framework. Businesses and individuals navigating cryptocurrency matters may contact us.
FAQ: Cryptocurrencies Hong Kong Legal Status
Are cryptocurrencies considered property under Hong Kong law?
Yes. The Court of First Instance confirmed in 2023 that cryptocurrencies qualify as property under Hong Kong law.
Does this mean cryptocurrencies are always held on trust?
No. While cryptocurrencies can be held on trust, whether a trust exists depends on the specific legal arrangements and contractual terms.
Why is the classification of cryptocurrencies as property important?
It allows cryptocurrency holders to assert legal rights and seek remedies such as injunctions and damages in disputes.
What happens to cryptocurrencies if a platform becomes insolvent?
This depends on whether the assets are held on trust. If no trust exists, they may form part of the company’s assets for distribution among creditors.
Does Hong Kong follow other jurisdictions on cryptocurrency recognition?
Yes. Hong Kong’s approach aligns with other common law jurisdictions that recognise cryptocurrencies as property.
How can Ravenscroft & Schmierer assist with cryptocurrency matters?
Ravenscroft & Schmierer supports clients in understanding their legal position, structuring arrangements, and addressing disputes involving digital assets.
Why work with Ravenscroft & Schmierer on digital asset issues?
Digital assets involve complex legal and regulatory considerations. Ravenscroft & Schmierer combines legal expertise with practical insight to help clients manage risks and operate within Hong Kong’s evolving framework.
Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
For specific advice about your situation, please contact:
Litigation Partner
+852 2388 3899
Trainee Solicitor
+852 2388 3899
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