June 2023

The issue as to whether cryptocurrency is a “property” has finally been resolved in the recent authority of Re Gatecoin Ltd [2023] HKCFI 914 (“Gatecoin”). Cryptocurrency has no statutory definition in Hong Kong and the nearest term is found in the definition of “property” under the Interpretation and General Clauses Ordinance Cap. 1 (“IGCO”) to mean “(a) money, goods, choses in action and land and (b) obligations, easements and every description of estate, interest and profit, present or future, vested or contingent, arising out of or incident to property as defined in paragraph (a) of this definition”. Linda Chan J in Gatecoin, after making reference to several UK and New Zealand authorities like National Provincial Bank v Ainsworth [1965] AC 1175 and Ruscoe v Cryptopia [2020] NZHC 728, ruled that section 3 of IGCO is wide and inclusive enough to cover cryptocurrency.

In the liquidator’s case of Gatecoin, while the subject company was running a cryptocurrency exchange business, the liquidator asked for directions as to whether the cryptocurrencies held by Gatecoin were property that was held on trust by Gatecoin and that could be made available to creditors in liquidation. Though the term of cryptocurrency is not defined in either the Companies (Winding Up and Miscellaneous Provisions) Ordinance Cap. 32 or IGCO, Linda Chan J ruled that cryptocurrency is an intangible property. To summarize, cryptocurrency has these observed characteristics:

  • It is definable. The key to a cryptocurrency wallet is identifiable and unique to an individual account holder.
  • It is identifiable by a third party. Only the holder of a private key is able to access and transfer the cryptocurrency from one wallet to another.
  • It is capable of being the subject of trade in the market where (a) the rights of the owner in that property are exercisable and (b) any interested third party can obtain ownership.
  • It has a degree of permanence or stability because the history of a cryptocurrency is available.

The proprietary nature of cryptocurrency is now confirmed and it could be held on trust. This must lead to an increasing number of tracing actions in insolvency, in particular, for unfair preference, undervalue transaction, voidable transaction and fraudulent trading.