Investing in OSL, compliant crypto group BGX may be licensed in Hong Kong

2023-11-14 22:29

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Source: Odaily Star Daily

Author: Fu Ruhe Qin Xiaofeng

News tonight, Hong Kong licensed virtual asset exchange OSL announced that cryptocurrency group BGX has made a strategic investment in OSL's parent company, HKEX-listed BC Technology Group (HKG: 0863), subscribing to approximately HKD 710 million in new shares.

Yesterday, BC Technology Group announced the suspension of stock trading and announced that a major announcement will be released soon. This morning, BC Technology Group sold 90% equity of its indirectly wholly-owned subsidiary, Shanghai Jingwei Enterprise Development Co., Ltd., for approximately RMB 23 million (approximately HKD 24.6 million).

According to the announcement from BC Technology Group, they will issue 187.6 million new shares to BGX, which is equivalent to approximately 42.79% of the existing share capital. The current major shareholder of BC Technology, East Harvest, will see their shareholding diluted from 42.77% to 29.96%, while BGX's future shareholding will be 29.97%. In addition, BC Technology stated that approximately 43% of the fundraising net proceeds will be used for potential mergers and acquisitions of digital assets and blockchain platform companies, approximately 29% will be used for the development of digital asset platform technology, approximately 14% will be used to meet capital requirements, and approximately 14% will be used for general operating expenses.

We believe that our investment in BC Technology Group and OSL is a strategic move that reflects our belief in the huge potential of the digital asset market. This partnership will not only enhance BGX's global influence, but also strengthen the growth trajectory of the digital asset industry," said Patrick Pan, CEO of BGX.

Shortcut to Enter Hong Kong: Investing in Licensed Trading Platforms

What is more interesting is, who is BGX? The announcement mentioned that BGX Group is a "leader in the field of cryptocurrency" and aims to provide an innovative platform for institutional and retail investors to find cryptocurrency investment opportunities anytime, anywhere. Why is BGX Group willing to invest hundreds of millions of dollars in a Hong Kong-listed company?

With the series of friendly policies towards the cryptocurrency industry introduced by Hong Kong, more and more cryptocurrency companies are applying for virtual licenses to settle in Hong Kong. Binance, OKEx, and others are among them. However, the journey to enter Hong Kong is long and arduous for each of them.

First of all, applying for compliance licenses is time-consuming and labor-intensive, and progress is slow.

According to the "Guideline on the Application for Virtual Asset Trading Platform Operators" (VASP Guideline) published by the Hong Kong Securities and Futures Commission on June 1st this year, in order to carry out exchange business, it is necessary to hold a dual license, namely the traditional Type 1 license (securities trading), Type 7 license (providing automated trading services), and the latest VASP license.

Due to the new VASP issuance system, which sets many thresholds in terms of funds, registration, custody, personnel, and other dimensions, no trading platform has obtained a VASP license yet, and all are basically at the same starting line.

However, two exchanges, HashKey and OSL, have already secured the traditional No. 1 and No. 7 licenses. Even major cryptocurrency native platforms such as Binance are not included in the recently published "List of Applicants for Virtual Asset Trading Platforms" by the Hong Kong Securities and Futures Commission, indicating slow progress.

In addition, the initial cost of applying for a license in the encryption industry is high, and there is no upper limit on subsequent investment.

According to the Tencent News "Qian Wang" report, individuals who are trying to apply for a trading license estimate that the cost required before submitting the license application is at least HKD 100 million. Apart from the cost of management personnel, the majority of the cost is in the system technology, and this is just a ticket to apply for a trading license in Hong Kong. Even after the system is built, there is still a risk of not being able to obtain the license.

The progress of actively applying for a license is slow, and the expenditure is huge, with high uncertainty. Against this background, BGX Group invests strategically in the parent company of OSL, which already has a license, BC Technology Group, to reduce the threshold for entering Hong Kong, or as an efficient path.

二、OSL's poor performance, BC Technology introduces BGX as a new shareholder

Another question is, why did OSL become the breakthrough point for BGX Group to obtain a license, when there are currently two licensed companies in Hong Kong? One important reason is that OSL's development in recent years has not been satisfactory, and its performance has not improved significantly.

OSL is a subsidiary of BC Technology Group (HKG: 0863), a publicly listed company on the Hong Kong Stock Exchange. BC Technology Group Limited is an investment holding company with three core business segments, namely OSL Digital Asset and Blockchain Business Segment, Advertising Business Segment, and Commercial Park Management Service Business Segment.

OSL's digital asset and blockchain platform business is the main source of revenue for BC Technology Group, including two main business segments: digital asset market business (bulk brokerage, trading, and custody) and digital asset technology infrastructure business (SaaS) providing technology to banks, asset management companies, and financial institutions, enabling them to offer digital asset trading services to their clients.

根据近两年的财报来看，BC Technology Group selling OSL is also considered "mediocre", tasteless to eat and a pity to abandon.

According to the BC Technology Group's financial report for the first half of this year, the revenue was HKD 126 million, with a basic loss per share of HKD 0.22. The revenue of OSL's digital asset business was HKD 105 million (equivalent to USD 13.45 million). Although the revenue of OSL exchange increased by 28.3% year-on-year to HKD 6.5 million, the overall performance is far behind other leading cryptocurrency exchanges, and even inferior to the monthly revenue of a third-tier exchange.

Previously, according to media reports, BC Technology Group intended to list OSL on a trading platform.

Earlier this year, Tencent News' "Qian Wang" reported that BC Technology Group planned to sell OSL and was looking for buyers in the market, but no one took over. In October of this year, Bloomberg reported again that BC Technology Group plans to sell its digital asset platform OSL for an estimated value of HKD 1 billion, and insiders also revealed that BC Technology Group may decide to sell part of OSL's business instead of the entire business. However, just one day later, the BC Group's board of directors refuted the report, stating that the content and statements in the report were not true and highly misleading.

In early November, Hu Zhenbang, CFO of OSL, stated that the APP development work has been completed and is expected to be launched on the app store this month. It seems that they want to take advantage of the market trend and make a strong effort.

It seems that today's announcement has confirmed that BC Tech Group does intend to bring in a native encryption company, BGX, which is more proficient in encryption operations, as a new shareholder, in an attempt to revitalize the business that has been in a stalemate.

After all, Hong Kong has become a new holy land for the encryption industry, and it is wise for OSL, which holds a license, to wait and see.