Landmark insolvency decision in Hong Kong on treatment of cryptocurrencies

Re Gatecoin Limited (Gatecoin) is a landmark decision concerning the winding-up of a cryptocurrency exchange. 

Background

Liquidators secured over 50 types of cryptocurrencies with an aggregate value of over HK$140m. To aid the liquidator’s allocation of the seized cryptocurrencies, the Court of First Instance decided two key issues. 

Decision

The court held that:

• Cryptocurrency constitutes "property" under Hong Kong law.
• Cryptocurrencies are capable of being held on trust. 

In Gatecoin, however, the court held that in the particular circumstances, the cryptocurrencies were not held on trust. In deciding this, the court considered the "three certainties" test. Certainty of subject and certainty of object were found because an exchange ledger maintained by Gatecoin clearly recorded customers' identities and balances. On certainty of intention, Gatecoin’s T&Cs expressly disclaimed any fiduciary relationship and did not expressly declare a trust.

Key takeaways

• T&Cs matter – how the relationship is defined and how assets are to be treated affect whether a trust over cryptocurrencies is validly constituted and consequently, whether a customer has rights as a beneficiary or a mere unsecured creditor.
• Uncertainty over allocation of assets – the allocation of assets remains uncertain as no trust was found in Gatecoin.
• Recovery of cryptocurrencies – tracing cryptocurrencies is less complex because of the nature of blockchain and publicly-distributed ledgers. 

Find out more

To discuss the issues raised in this article in more detail, please contact a member of our Hong Kong Restructuring & Insolvency team.

Re Gatecoin Limited [2023] HKCFI 914