FINTECH LAW
BYTES, RIVERS, GOLD: THE RULING OF CRYPTOCURRENCY AS PROPERTY
The boom of blockchain technology has reinvented money as intangible digital tokens. In the landmark decision of ByBit Fintech Ltd v Ho Kai Xin & Ors [2023] SGHC 199 (“ByBit”)¹, the High Court tackled the question: Is cryptocurrency property capable of being held on trust?
Background
Ms Ho Kai Xin was employed by WeChain Fintech Pte Ltd to manage payroll processing for ByBit Fintech Ltd. As part of her duties, she maintained Excel spreadsheets that tracked the transfer of cryptocurrency payments and fiat currency to ByBit employees.
After reviewing suspicious transactions, ByBit claimed that Ms Ho abused her position by transferring 4,209,720 USD of Tether (USDT) to her own cryptocurrency wallets. ByBit claimed that Ms Ho held both USDT and the fiat currency on trust for ByBit, and sought the return of its proceeds, or payment of equal value.
Up until ByBit, Singapore’s courts had granted interlocutory injunctions merely suggesting that cryptocurrencies may be property. (see B2C2 Ltd v Quoine Pte Ltd [2019]²). However, in ByBit, the High Court went further to tackle the following questions:
- Is a crypto asset a property capable of being held on trust?
- If yes, what type of property does cryptocurrency fall under?
What is the USDT?
The USDT is a crypto asset that has been described as a stablecoin. Stablecoins are cryptocurrencies pegged to reference assets such as currencies or commodities. To allow a relatively stable price, the supply of stablecoins may also be regulated by algorithms. In this case, the USDT converts cash into digital currency, and “tethers” its value to national currencies like the US dollar.
Is Cryptocurrency Property?
When assessing if an object is property, Courts often reference the characteristics cited in National Provincial Bank v Ainsworth [1965]³:
- The right affecting property should be definable.
- The right affecting property should be identifiable by third parties.
- The right affecting property should be capable in its nature of assumption by third parties.
- The right affecting property should have some degree of permanence or stability.
On 3 July 2023, the Monetary Authority of Singapore (MAS) published a consultation paper proposing segregation and custody requirements for digital payment tokens⁴. In light of MAS’ position, the Court held that “it is possible in practice to identify and segregate such digital assets”,⁵ which suggests it should be legal to hold them on trust.
Furthermore, Order 22 r.1 of the Rules of Court 2021 defines “movable property” as inclusive of “cryptocurrency or other digital currency”⁶. This gives recognition to cryptocurrency as property which can be the subject of an enforcement order.
Crypto assets are represented by digital bits and bytes and unlocked by cryptographic mechanisms. Clearly, crypto assets have no physical identity and change with each transaction. However, the Court suggested that “nonetheless, we identify what is going on as a particular digital token, somewhat like how we give a name to a river even though the water contained within its banks is constantly changing”.⁷
“Yet, crypto assets do manifest themselves in the physical world, albeit in a way that humans are unable to perceive.”
-Justice Philip Jeyaretnam, Singapore High Court
Value as not Inherent, but Perceived
In another example, the Court commented, “While we speak of expensive materials, with gold more valuable than wood, this is a judgment made by an aggregate of human minds.”⁸ In this vein, since crypto assets are widely traded and even used on companies’ balance sheets, they should be credited as having perceived monetary value. This rebuts the arguments that crypto assets are not property due to their unique characteristics.
“…It is also a judgment that varies with circumstances. A wooden chair that can float is more valuable on a ship that is sinking than a golden throne would be.”
-Justice Philip Jeyaretnam, Singapore High Court
Can USDT be Classed as Things in Action?
When an asset is classified under things in action (also known as “choses in action”), one’s rights to it are enforceable by litigation in court.
The Court referred to W.S. Holdsworth’s “The History of the Treatment of ‘Choses’ in Action by the Common Law”, which shows the diverse range of property deemed things in action⁹. Evidently, the category of things in action is “broad, flexible and not closed”¹⁰ and has over time expanded to include incorporeal rights like copyrights. As such, the Court held that even without an individual counterparty to the crypto holder’s right, USDT did comprise things in action.
Considering the above, the Court ruled that USDT is property that can form the subject matter of a trust, and that a crypto asset holder has an incorporeal right of property recognisable as a thing in action. As such, the Court imposed a constructive trust (ie an equitable remedy to benefit the wronged party) over USDT in favour of ByBit.
Implications of ByBit
In ByBit, Singapore’s High Court expressly recognised that a crypto asset holder has a legally enforceable property right. This means that crypto assets could be provided greater legal protection. Furthermore, if a crypto asset holder becomes a victim of fraud, the full range of proprietary remedies (proprietary injunctions, constructive trusts, equitable liens etc) may be available.
In view of the evolving regulations, blockchain players should familiarise themselves with the legal characteristics of cryptocurrencies to ensure compliance and protection of their interests.
Crypto-Friendly Outlook
The decision in ByBit aligns with the trend of “crypto-friendly” rulings in Singapore’s courts. For example, in In Re Babel Holding Ltd and other matters [SGHC 98], the High Court granted moratoria to Babel Group to design a global restructuring plan centred in Singapore.¹¹ In Rio Christofle v Tan Chun Chuen Malcolm [2023] SGHC 66, the High Court held that the Payment Services Act 2019 does not prohibit contracts on the sale and purchase of cryptocurrency. ¹²
With such cases in mind, parties dealing with cryptocurrency can be reasonably optimistic about the willingness of Singapore’s courts to take a robust and commercially-oriented approach while applying established legal principles to cryptocurrency cases.
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References
[1] ByBit Fintech Ltd v Ho Kai Xin & Ors [2023] SGHC 199
[2] B2C2 Ltd v Quoine Pte Ltd [2019] 4 SLR 17
[3] National Provincial Bank v Ainsworth [1965] AC 1175
[4] MAS. (2023, July 3). Consultation Paper on proposed amendments to the payment services … https://www.mas.gov.sg/-/media/mas/news-and-publications/consultation-papers/2023-consultation-paper-on-proposed-amendments-to-the-ps-regs/consultation-paper-on-proposed-amendments-to-the-payment-services-regulations.pdf
[5] ByBit, supra
[6] Rules of Court (Cap. 322, 2021 Rev. Ed)
[7] ByBit, supra
[8] ByBit, supra
[9] Holdsworth, W. S. (1920). The history of the treatment of “Choses” in action by the Common Law. Harvard Law Review, 33(8), 997. https://doi.org/10.2307/1327628
[10] ByBit, supra
[11] In Re Babel Holding Ltd and other matters [SGHC 98]
[12] Rio Christofle v Tan Chun Chuen Malcolm [2023] SGHC 66
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Infinity Legal LLC thanks and acknowledges Intern Tan En Xi for her contribution to this article.
[Last Updated: 19 January 2024, 3:32pm]