Crypto and conversion – are digital assets a “Third Category” of property?

In summary: maybe, but it’s not certain yet. The High Court has struck out a claim for conversion of over 2,300 Bitcoin, valued at between £160 and £180 million, in a case that tests the boundaries of English property law in the digital age.

The decision of Cotter J in Yuen v Li [2026] EWHC 532 (KB) confirms that, whilst Parliament has permitted recognition of digital assets as a ‘third category’ of property pursuant to the Property (Digital Assets etc) Act 2025 (the “Digital Assets Act”), victims of crypto theft cannot rely on the strict liability tort of conversion. The judgment nevertheless leaves the door open for the courts to develop new protections tailored to digital assets.

With UK crypto holdings in the billions and cyber security attacks affecting over 40% of businesses annually¹, Yuen v Li underscores that classifying digital assets as 'property' is only half the battle; the law must still determine how that property can be protected when it falls into the wrong hands.

Background

The Claimant owns 2,323.28423347 Bitcoin, the private key to which was stored on a “cold wallet”, a PIN-protected physical device not connected to the internet. The Claimant alleged that the Defendants, his estranged wife and her sister, illicitly obtained the Claimant’s “seed phrase” (24 randomly generated words) through secret recordings, enabling the Bitcoin wallet to be recreated on devices in their control. On 2 August 2023, the Bitcoin was moved from a single address on the blockchain to 71 separate addresses.

Having been forewarned by his daughter that the First Defendant intended to take the Bitcoin, the Claimant had himself installed audio-recording equipment which, he alleged, proved beyond doubt her culpability. When the Claimant discovered the transfer, he confronted and assaulted the First Defendant, resulting in his arrest. A police investigation followed but no further action was taken against the First Defendant in respect of the alleged theft, pending new evidence.

On 21 November 2025, the Claimant applied for a proprietary asset preservation injunction and disclosure order, advancing causes of action including in conversion and trespass to goods. Conversion is particularly attractive to claimants because it imposes strict liability, meaning a defendant can be held liable simply for wrongfully dealing with another's property, without the need to prove dishonesty, knowledge or intent.

The First Defendant applied to strike out the claims in conversion and trespass to goods, arguing that they were bad in law, essentially on the basis that Bitcoin was not a “thing in possession” (tangible property).

In response to the First Defendant’s strike-out application, the Claimant argued that a claim in conversion applied to digital assets such as Bitcoin because they were not merely “things in action” (intangible rights or claims, enforceable by legal action, and historically the only alternative to “things in possession”). The Claimant also applied to add causes of action including unjust enrichment, breach of confidence and misuse of private information, causing loss by unlawful means and proprietary restitution/constructive trust – none of which have the simplicity of a claim in conversion.

What did the Court decide?

The Court struck out the conversion claim and indicated that the trespass to goods claim faced similar difficulties. However, the Claimant was permitted to pursue alternative causes of action, including unjust enrichment, breach of confidence, misuse of private information, proprietary restitution and constructive trust. An amended plea of causing loss by unlawful means was also allowed to proceed.

Conversion

In striking out the conversion claim, Cotter J held that he was bound by the House of Lords' decision in OBG v Allan², which established that conversion applies only to ‘things in possession’ and not ‘things in action’. Although the Claimant argued that Bitcoin is property vulnerable to misappropriation and that the common law could develop to recognise such claims, the judge concluded that OBG v Allan constituted "a clear block" to extending conversion to digital assets. Even Parliament’s express recognition in the Digital Assets Act of the possibility of a ‘third category’ of property was insufficient to overcome this obstacle.

That said, Cotter J acknowledged that there may be scope for courts to develop "specific and discrete principles of tortious liability by analogy with, or which draw on some elements of, the tort of conversion" to address wrongful interference with digital assets, an approach the Law Commission had suggested in its 2023 report.

Trespass to goods

The trespass claim faced a related conceptual hurdle. Trespass requires direct physical interference with tangible property. On the facts alleged, the cold wallet itself remained in the Claimant’s possession throughout; the First Defendant was said to have obtained the seed phrase and transferred the Bitcoin without ever physically handling the device.

The difficulty was not simply that the asset was digital, but that there was no pleaded physical interference. Cotter J described the position as “somewhat unsatisfactory” and acknowledged that the application of trespass principles to electronic data storage devices remains “difficult and uncertain”. The Claimant suggested that the First Defendant may have touched the wallet or altered data on it; accordingly, he was given seven days to apply to amend the pleading, failing which the trespass claim would be struck out.

Causing loss by unlawful means

Although not deciding the substantive merits of this point, the Court allowed an amended claim for causing loss by unlawful means to proceed. This was notable because the tort is traditionally understood as a three‑party tort. Cotter J recognised the possibility of a two‑party variant as an area of “developing jurisprudence”, particularly where a claimant’s economic interests have been deliberately harmed by a crime committed directly against them.

Why is this decision important?

English courts have readily accepted that digital assets (such as cryptocurrency³ or non-fungible tokens⁴) constitute ‘property’ and are willing to grant proprietary injunctions over those assets in cases of loss, theft or extortion. The Digital Assets Act, which came into force on 2 December 2025, now permits a ‘third category’ of property, following the Law Commission’s view that digital assets such as cryptocurrency do not fit within either of the ‘traditional’ categories of property.⁵

Claimants seeking to recover misappropriated digital assets have typically relied on causes of action such as proprietary restitution, constructive trust and unjust enrichment⁶. Yuen v Li confirms that conversion, and potentially also trespass to goods, remain unavailable for digital assets.

On the facts alleged, Cotter J considered that the Claimant should have adequate remedies through the alternative causes of action now pleaded. However, the Law Commission has identified a potential lacuna in other scenarios - for example, where digital tokens are 'burned' (permanently destroyed) and no claim in unjust enrichment or proprietary restitution can be made out.

Cotter J acknowledged scope for courts to develop new tortious principles by analogy with conversion to address all such cases.

How will the law protect digital assets?

Those involved in digital assets disputes should be aware of a growing body of authority, including:

The Court of Appeal’s obiter comments in the criminal case R v Lakeman⁷ (currently on appeal to the Supreme Court) that in-game virtual currency constitutes property because it has “the characteristics of rivalrousness”;
The recently published non-binding guidance of the UK Jurisdiction Taskforce’s Control Panel in relation to the characteristics of ownership and control as they relate to various third category assets and the many ways in which they may be held;⁸ and
Authorities from other common law jurisdictions where courts have already extended conversion to digital assets, as the Claimant’s lawyers relied on in Yuen v Li.

However, Yuen v Li establishes the limits of existing tort law in protecting digital assets. Victims of crypto theft currently face an emptier toolkit of remedies than those seeking to recover tangible property.

The judgment nonetheless indicated that the common law could develop new tortious protections, and the statutory recognition of a third category of property certainly provides a foundation for such development. Combined with practical guidance from the UK Jurisdiction Taskforce and persuasive authorities from other common law jurisdictions, English courts are increasingly well-equipped to address these novel questions.

Authors: Dan Smith, Edward Rees, Rebecca Garrick and Inez Farrands.

¹ Department for Science, Innovation & Technology and Home Office, Cyber Security Breaches Survey 2025 (2025)
² [2008] 1 AC 1
³ AA v Persons Unknown [2019] EWHC 3556
⁴ Osbourne v Persons Unknown [2022] EWHC 1021 (Comm)
⁵ Law Commission, Digital Assets: Final Report (Law Com No 412, 2023) and Law Commission, Digital Assets as Personal Property: Supplemental report and draft Bill (Law Com No 416, 2024)
⁶ Such as AA v Persons Unknown [2019] EWHC 3556 and Jones v Persons Unknown [2022] EWHC 2443 (KB).
⁷ [2026] EWCA Crim 4
⁸ The UKJT’s Control Panel Report on Control of Digital Assets, March 2026
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