In brief

A recent decision by the Court of First Instance in Re Gatecoin Limited[1] ruled that cryptocurrencies are “property” and are capable of being held on trust. This is a welcomed decision, clarifying the nature of cryptocurrencies and the interests of investors when depositing cryptocurrencies with exchanges.

Key takeaways

The decision affirms the proprietary nature of cryptocurrencies in Hong Kong. The decision has significant implications for players in the cryptocurrency market:

  • The decision offers greater certainty with respect to the legal status of cryptocurrencies and the rights and obligations pertaining thereto under the law.
  • For cryptocurrency exchanges and their investors, the terms and conditions of use of the exchange are a key factor in determining whether the cryptocurrencies deposited are held on trust for an investor. Exchange users must carefully examine the terms and conditions.
  • In an insolvency context, cryptocurrencies that are held on trust for exchange users will be returned to users if the exchange is wound up. In contrast, cryptocurrencies that are assets of the exchange will be realized to fund the costs of the liquidation and made available for distribution to unsecured creditors of the insolvent exchange.

Gatecoin Limited (“Gatecoin“) operated a cryptocurrency exchange platform. Customers opened accounts with the platform and deposited cryptocurrencies or fiat currencies (“Currencies“) with Gatecoin for trading purposes. In March 2019, Gatecoin was wound up and joint and several liquidators (“Liquidators“) were appointed.

The Liquidators took out an application under s.200(3) of the Companies (Winding up and Miscellaneous Provisions) Ordinance (Cap. 32) (CWUMPO) for directions from the Court on (1) the characterization of the Currencies held by Gatecoin; and (2) the allocation of the Currencies to Gatecoin’s customers.

The terms and conditions of Gatecoin

Gatecoin had updated its terms and conditions on a few occasions. The terms and conditions in place prior to the winding up contained no express declaration of trust and expressly disclaimed any fiduciary relationship between Gatecoin and its customers. The terms and conditions further provided that the Currencies may be stored in pooled blockchain assets accounts or omnibus fiat accounts.

In practice, the Currencies deposited by Gatecoin’s customers were treated as Gatecoin’s assets. Gatecoin was able to use the cryptocurrencies in its wallets as it saw fit, including to carry on trades in its own right. Gatecoin’s audited financial statements treated the cryptocurrencies held by Gatecoin as its assets and the “customer deposits” as liabilities.

The court held that Gatecoin held the Currencies in its own right under this latest version of the terms and conditions, and not on trust for its customers.

The practical implication of this decision is that for customers that have accepted the latest terms and conditions, the “customer deposits” held by Gatecoin formed the assets of Gatecoin in the liquidation process. The investors making these deposits will not have a proprietary claim to the Currencies in their accounts and will be treated as unsecured creditors of Gatecoin.

Cryptocurrencies are “property”

The decision is significant in that the court confirmed that cryptocurrencies fall within the definition of “property” and are capable of forming the subject matter of a trust.

Prior to this decision, the court had granted interlocutory proprietary injunctions over cryptocurrencies without any party suggesting that cryptocurrencies were not “property.” The decision that cryptocurrency is property also aligns the Hong Kong position with that of other common law jurisdictions, which recognize the proprietary nature of cryptocurrencies.

The way forward

The case highlights the importance of the terms and conditions of cryptocurrency exchanges, which govern the extent to which an exchange is entitled to deal with users’ assets and the protection (if any) offered to exchange users in the case of the exchange’s insolvency. Notably, cryptocurrencies that are held on trust for investors will be returned to investors in the event the exchange is wound up.

Under the existing and incoming licensing regimes in Hong Kong for centralized virtual asset trading platforms, licensed operators of virtual asset exchanges will be required to hold client money and cryptocurrencies on trust. This will ensure that all user or client assets will at all times be segregated from the assets of the exchange operator itself.

In contrast, similar to Gatecoin, unlicensed exchanges and trading platforms often times hold client assets in their own right, as if the client assets are actually assets of the exchange operator itself. Users should be aware of the risks of depositing assets with unlicensed trading platforms and should consider using trading platforms or other custodial solutions that ensure clear segregation of user assets and recognize the proprietary nature of cryptocurrencies.

[1]      [2023] HKCFI 914


Cynthia Tang is the head of the Dispute Resolution Group for Baker McKenzie’s Hong Kong and China offices. She has over 25 years of experience in Hong Kong and Asia. Chambers Asia Pacific, PLC Which Lawyer? and Asia Pacific Legal 500 have ranked her as one of the leading lawyers in the Financial Services/Regulatory field for five consecutive years. She previously served on a number of committees in the Securities and Futures Commission and is currently appointed by the Hong Kong Government as a Member of the Standing Committee on Company Law Reform and Disciplinary Panel A of the Hong Kong Institute of Certified Public Accountants. She is also a China-Appointed Attesting Officer.


Jannice Lau is a partner in the Dispute Resolution Group in Baker McKenzie’s Hong Kong office. Her practice focuses on regulatory matters and complex commercial disputes. She has been mentioned by Legal 500 as being “very diligent in her analysis.” Jannice advises financial institutions and listed companies on investigations and enquiries by regulators, including The Stock Exchange of Hong Kong Limited, the Securities and Futures Commission, the Financial Reporting Review Committee and the Audit Investigation Board. She is also experienced in advising on shareholder disputes with cross-border elements.