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Legal update on cryptocurrency liquidation case

Hong Kong
06/02/2025
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Following the High Court’s landmark case in 2023 where cryptocurrency was recognised by the Court as property and could form a subject matter of a trust, the High Court recently further clarified the trust relationship between exchanges and their customers. Non-Consenting Customers (NCCs) who did not accept the 2018 Terms and Conditions (T&C) were found to have a proprietary interest in their assets, giving them priority in the liquidation process. Conversely, customers who had agreed to the T&Cs were treated as unsecured creditors. This recent decision in the Gatecoin liquidation case has significant implications for cryptocurrency customers.

Key Takeaways for Customers:

  1. Understand Terms and Conditions: Always review and understand the T&C of any cryptocurrency exchange. Your acceptance can impact your rights in the event of insolvency.
  2. Trust Arrangements: Choose exchanges that hold your assets on trust. This provides a proprietary interest, offering better protection and priority claims.
  3. Perform Due Diligence: Investigate the operational practices of exchanges. Ensure they have robust systems for managing and safeguarding assets.
  4. Diversify Holdings: Spread your assets across multiple exchanges and consider using hardware wallets to mitigate risks.
  5. Stay Informed: Keep up-to-date with legal and regulatory developments in the cryptocurrency space to make informed decisions.

Protecting your interests requires vigilance and proactive measures. Stay safe and informed in the evolving world of cryptocurrency!

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