Who owns your crypto?

The answer to this question is of crucial importance when it comes to their position in the insolvency proceedings. Are they owners with a claim to specific assets, or merely creditors standing in line with everyone else? Courts elsewhere have already answered in the affirmative in relation to exchange collapses in the US (Celcius) and in Italy (BitGrail). In Japan, the courts rejected the possibility of ownership. Its parliament, however, subsequently decided that crypto-assets should be subject to ownership and the law was amended (MtGox).

Under Dutch property law, the answer whether crypto-assets are subject to ownership has traditionally been answered with no, but new European legislation may have changed that. This blog examines the question of whether crypto-assets are subject to ownership and asks if this would be desirable or not. 

What qualifies as things?

Under the Dutch Civil Code (DCC) only ‘things’ (zaken) can be subject to ownership. To be considered a thing, an asset must be: (i) corporeal; (ii) an object; and (iii) subject to human control (Art. 3:2 DCC). Corporeal means something is tangible and perceptible: electricity, for instance, is not considered a thing because you cannot touch or see it. 

An object must also be seen as an individually identifiable amount. In the Taxeira de Mattos case, share certificates without identification numbers were not considered ‘objects’ under Dutch law, because no one could identify which specific certificate belonged to whom. And for an object to be subject to ‘human control’, a potential owner can keep third parties from using the asset.

Where crypto falls short

Crypto-assets meet only two of these three requirements. They can be subject to human control – access requires a private key – and they are often individually separate amounts since every crypto-asset has a unique public key. 

What they are not is corporeal: they exist purely as digital code, with nothing tangible or visible. Therefore, under Dutch property law, crypto-assets are not ‘things’, and are not subject to ownership. 

Ownership and MiCAR

The EU’s Markets in Crypto-Assets Regulation (MiCAR) complicates the picture. Article 70(2) states that customers’ ownership rights over their crypto-assets must be protected. The language therefore suggests that EU law does recognise crypto assets as subject to ownership. But how does that translate into national law?

Consider, for example, buying shares through an online trading app like Trade Republic. When you tap ‘buy’, you do not necessarily become the direct legal owner of that one specific share. The app will happily tell you ‘your investments are protected’, but that guarantee concerns the firm's duty to safeguard your position. It is not proof that you personally own the underlying share.

Whether you do own the share depends on national property law and not on the marketing language of an EU directive. Crypto-assets under MiCAR face the same problem. That is because MiCAR borrows its ownership-protection language directly from MiFID II. Article 70(2) MiCAR is nearly identical to Article 16(8) MiFID II, which similarly protects customers’ ownership rights over their investments. A logical place to look next is the MiFID regimes: this itself directly implements Article 26 of the original MiFID I. 

How courts have drawn the line

The UK’s experience with that same language is instructive. UK regulatory guidelines, as confirmed by the Supreme Court in the Lehman Brothers client money case, distinguishes between legal ownership (held by the firm) and beneficial ownership (held by the client). In both cases, they explicitly state that the origin of this difference is found in the MiFID regimes. 

The Dutch Supreme Court has reasoned similarly elsewhere: even though MiFID protects ownership rights, that protection does not create Dutch legal ownership for assets that do not already meet the property law requirements.

Nothing special about crypto

So, under Dutch property law crypto-assets are not ‘owned’. Not because of anything special about crypto, but because, like any other digital and non-tangible asset, they fail the corporeality test. MiCAR’s ownership-protection language does not change that conclusion. Nor did similar language in the MiFID regimes create legal ownership in other intangible investments under Dutch property law.

That has serious consequences. In an insolvency case like Knaken’s, customers have no ownership claim and no right to reclaim their specific assets. Instead, they are ordinary creditors and in a significantly weaker position than if there were the owner of their crypto-assets.

A different choice

Other jurisdictions decided that this outcome was unfair to customers. In the earlier mentioned MtGox case, the Japanese Supreme Court also ruled that bitcoin was not subject to ownership under a similar framework. However, Japan’s parliament then introduced new legislation specifically intended to make crypto-asset ownership possible. 

Crypto-asset trading platforms themselves seem to agree that ownership makes sense: many already transfer ownership from customers to themselves in their terms and conditions. The Dutch parliament might consider introducing legislation similar to what was introduced in Japan. The impact this legislation will have on ownership of other intangible assets will depend on its language.