A landmark decision that could shape the future of cryptocurrency regulation, the United Kingdom High Court has ruled that Tether (USDT), one of the world’s leading stablecoins, qualifies as property under English law. This ruling marks the first time an English court has addressed the status of cryptocurrency in a post-trial setting, setting a precedent for how digital assets are treated in the legal system.

The Case and Its Implications

The ruling came as part of a case involving Fabrizio D’Aloia, a fraud victim whose cryptocurrency, including Tether, was stolen and subsequently laundered through various exchanges. The crux of the case revolved around whether Tether could be classified as property under English law, which would affect how it can be traced and recovered.

In his September 12 ruling, High Court of Justice Deputy Judge Richard Farnhill stated that Tether does indeed attract property rights under English law. This decision is significant because it provides a clear legal framework for how cryptocurrencies, specifically stablecoins, are treated within the UK’s legal system.

According to Farnhill, Tether is a “distinct form of property” that does not rely on traditional legal rights but can still be subject to tracing and considered trust property similar to other forms of property. This classification aligns with a 2019 judgment from the same court and is consistent with the England and Wales Law Commission’s 2023 report, which marked digital assets as property.

Impact of the Ruling

The decision to recognize Tether as property could have wide-ranging effects on how cryptocurrency disputes are handled in the UK. It provides a legal basis for victims of fraud and theft involving digital assets to seek recovery and compensation. This ruling also enhances the ability of law enforcement and legal entities to trace and reclaim stolen cryptocurrencies.

The ruling comes on the heels of a UK government bill introduced just a day earlier, which aims to clarify the status of various digital assets, including NFTs and cryptocurrencies, under property laws. The bill seeks to formalize the treatment of these assets as “personal property,” which would further support the legal framework established by this recent court decision.

Challenges in the Case

Despite the positive ruling for Tether, the case did not result in a favorable outcome for D’Aloia in terms of recovering his stolen assets. The court found that D’Aloia could not prove that Thai exchange BitKub had benefitted from the stolen Tether. This was largely due to the involvement of crypto mixers, which obfuscated the transaction trails.

D’Aloia had alleged that BitKub received 400,000 USDT, part of which he claimed was traced back to his stolen funds. However, Judge Farnhill concluded that while USDT could theoretically be identified in mixed pools, there was insufficient evidence to link D’Aloia’s funds directly to BitKub’s wallet. Consequently, there was no defective transaction or breach of trust that could be remedied.

Nicola McKinney, a partner at Quillon Law who represented BitKub, explained that the judge found that the evidence presented did not meet the necessary standards to establish a clear connection between the stolen Tether and the exchange. This highlights the challenges in tracing digital assets and the importance of robust evidence in legal claims involving cryptocurrencies.

Lessons for the Crypto Industry

The ruling serves as a crucial lesson for those involved in cryptocurrency transactions and legal disputes. Matt Green, the head of blockchain and digital assets at law firm Lawrence Stephens, emphasized the need for clear and detailed evidence when dealing with proprietary claims in the crypto space. He stressed that legal teams must thoroughly understand the facts and address issues related to transaction mixing to advance successful claims.

Looking Ahead

The case also included claims against several other parties, including major exchanges such as Binance, Polo Digital Assets, Gate Technology Corp, and Aux Cayes Fintech, as well as individuals identified as “persons unknown.” The court is expected to review these claims and determine whether further legal actions or summary judgments are warranted.

As the legal landscape for cryptocurrencies continues to evolve, this ruling represents a significant step towards clearer regulations and protections for digital asset holders. It underscores the growing recognition of cryptocurrencies as legitimate forms of property and sets a precedent for how these assets will be treated in future legal cases.

Conclusion

The UK High Court’s decision to classify Tether as property marks a pivotal moment in the intersection of cryptocurrency and law. This ruling provides a foundational legal framework for addressing disputes involving digital assets and reinforces the need for clarity and robustness in evidence handling.