In a landmark decision, the Hong Kong Court of First Instance has affirmed that cryptocurrency qualifies as property under the law and can be held in trust for clients. This ruling in Re Gatecoin Limited [2023] HKCFI 914 marks a significant development in the legal recognition of digital assets within common law jurisdictions, particularly for investors and stakeholders in the growing virtual asset ecosystem.
The judgment not only clarifies the proprietary nature of cryptocurrencies but also sets important precedents regarding how exchanges manage customer funds—especially during insolvency proceedings. As digital finance continues to evolve, this case offers crucial insights into asset protection, fiduciary duties, and regulatory compliance.
The Case Background: Gatecoin’s Collapse and Legal Aftermath
Gatecoin Limited ("the Company") operated a cryptocurrency trading platform from January 2015 until it was ordered into compulsory liquidation on March 13, 2019. During its operation, users could register accounts, deposit fiat currency or crypto assets, trade across various digital currencies, and withdraw funds.
Following liquidation, the appointed liquidators sought court guidance on two key issues:
- The legal nature of the cryptocurrency and fiat money held by the company at the time of collapse.
- How these assets should be distributed among customers.
A central question arose: Were customer deposits held in trust, meaning they belonged to users rather than being part of the company’s general assets?
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To assess this, the court examined three versions of the platform's Terms and Conditions ("Terms") applicable to different user groups:
- Group A: Users who agreed to the 2016 Terms.
- Group B: Users who accepted a version with explicit trust language (“Trust Terms”).
- Group C: Users who registered under the 2018 Terms.
Determining whether any group had beneficial ownership of their deposited crypto required answering two foundational legal questions.
Is Cryptocurrency Legally Recognized as Property?
Before assessing trust relationships, the court first had to determine whether cryptocurrency qualifies as property—a prerequisite for being held in trust.
Drawing from the classic test established in National Provincial Bank v Ainsworth [1965] AC 1175, property must satisfy four criteria:
- It must be definable
- Capable of being identified by third parties
- Able to be assumed by third parties
- Possess some degree of permanence or stability
Despite differences in statutory definitions across jurisdictions, the court emphasized that Hong Kong adopts an inclusive interpretation of “property.” It looked to persuasive authorities from other common law systems and concluded that cryptocurrency meets all four Ainsworth criteria:
- Definable: Each wallet has a unique public key, clearly identifying holdings.
- Third-party identifiable: Only the private key holder can access or transfer funds—ensuring exclusive control.
- Exercisable: Crypto is actively traded, possesses market value, and attracts third-party interest.
- Stable/permanent: Blockchain provides an immutable, transparent ledger of all transactions.
Thus, the court confirmed that cryptocurrency is intangible property, capable of forming the subject matter of a trust.
Was Customer Crypto Held in Trust?
With crypto recognized as property, the next step was determining whether Gatecoin held it on trust for customers.
Application of the 2018 Terms
The court ruled that the 2018 Terms governed all active users, regardless of when they originally signed up. Even Group A and Group B customers were required to accept these updated terms to continue using the platform after March 2018.
Under the 2018 Terms:
- No express declaration of trust existed.
- Any fiduciary relationship between Gatecoin and its users was explicitly denied.
- Gatecoin reserved the right to benefit from any appreciation in value of deposited cryptocurrencies.
- All deposits were pooled into 18 master wallets controlled by Gatecoin and commingled with company funds.
- Gatecoin could use deposited crypto freely, including for its own trading activities.
- There was no obligation to maintain reserves matching customer balances.
- In audited financial statements (2016–2017), crypto holdings were listed as company assets, while customer deposits appeared as liabilities.
Given these factors, the court found no trust relationship existed for users bound by the 2018 Terms. Their assets formed part of the company’s estate and would be treated as unsecured claims in liquidation.
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Exception: Customers Who Never Accepted the 2018 Terms
A critical exception emerged for certain early users—dubbed “non-consenting customers”—who registered before 2018 but did not log in after the new terms took effect. These individuals never agreed to the 2018 Terms and thus remained governed by earlier agreements.
For Group A (2016 Terms), while no formal trust language existed initially, contextual evidence supported a trust arrangement:
- The drafters of the later Trust Terms were instructed by Gatecoin representatives that client assets were held in trust.
- Gatecoin compensated users for stolen Ethereum based on value at the time of reimbursement—not at the time of theft—consistent with trust accounting practices.
- When the Trust Terms were introduced, they applied retroactively to existing users unless overridden.
- The Trust Terms contained clear language stating that crypto belonged to clients and any gains accrued to them.
Based on this conduct and intent, the court concluded that a valid trust existed for non-consenting customers. Therefore, their crypto remained their property and should be segregated from Gatecoin’s insolvent estate.
Key Takeaways for Investors and Exchanges
This ruling reinforces several essential principles for market participants:
- Contract terms matter: The wording of user agreements determines legal rights in insolvency.
- Commingling = Risk: Pooling customer funds with corporate assets weakens claims of trust ownership.
- Transparency builds trust: Clear disclosures about asset handling enhance user protection.
- Regulatory alignment is vital: With Hong Kong’s new licensing regime for Virtual Asset Trading Platforms (VATPs) under SFC oversight, compliance enhances investor confidence.
Frequently Asked Questions (FAQ)
Can cryptocurrency be legally considered property?
Yes. The Hong Kong court confirmed that cryptocurrency satisfies established legal criteria for property: it is definable, identifiable, transferable, and permanently recorded on blockchain ledgers.
What does it mean for crypto to be held “in trust”?
When crypto is held in trust, the platform acts as a custodian—not owner. Customer assets are protected from creditors if the company goes bankrupt, increasing recovery chances during liquidation.
How do platform terms affect my rights as a user?
Your rights depend heavily on the platform’s Terms and Conditions. Agreements that deny fiduciary duties or allow commingling reduce legal protections. Always review terms carefully before depositing funds.
Should I only use regulated crypto exchanges?
Using SFC-licensed platforms in Hong Kong offers stronger safeguards. Regulated VATPs must meet custody, auditing, and capital requirements designed to protect investors.
What happens to my crypto if an exchange collapses?
If your assets are held in trust, you may recover them directly. If not, you become an unsecured creditor—often recovering little or nothing after debts are settled.
How can I protect my digital assets?
Use licensed platforms, avoid unregulated services, enable multi-signature wallets where possible, and consider self-custody for long-term holdings.
👉 See how regulated platforms uphold higher standards for asset security.
Final Thoughts
Re Gatecoin Limited is a pivotal moment in the evolution of digital asset law. By affirming that cryptocurrency is property and can be held in trust, Hong Kong courts have laid a foundation for stronger investor protections and clearer regulatory frameworks.
As virtual assets gain mainstream adoption, understanding the legal status of your holdings—and choosing platforms accordingly—will be more important than ever. Legal clarity empowers innovation while safeguarding users—ensuring trust remains at the heart of decentralized finance.
Core Keywords: cryptocurrency, property, held in trust, Hong Kong court ruling, virtual assets, insolvency, blockchain, investor protection