BC Technology Group, based in Hong Kong, refuted recent reports about considering the sale of its locally licensed digital asset business, OSL, for as much as HK$1 billion (US$137.3 million) in light of a 20% decline in its stock value on Tuesday.
Bloomberg News, in a report published on Monday, stated that the investment holding company, which had been listed on the Hong Kong stock exchange since 2012, was in the process of assessing potential interest from buyers regarding the sale of OSL. OSL is one of just two licensed cryptocurrency exchanges in the city, alongside HashKey. As per Bloomberg, BC Technology Group is contemplating the possibility of divesting specific segments of the business, as indicated by undisclosed sources.
BC Technology’s Shares Continue to Fall
BC Technology’s shares plummeted more than 22% the following day to HK$3.35. In response, the company stated in a filing to the Hong Kong stock exchange, “The Board wishes to clarify that the contents and statements in the article are factually inaccurate and highly misleading”.
Since Hong Kong revealed its ambitions to establish itself as a virtual asset hub a year ago, expectations for the local cryptocurrency market have soared. This transformation attracted interest from numerous exchanges, which became a necessity after new regulations took effect in June, requiring them to obtain licenses. However, the challenges associated with revitalizing the cryptocurrency business in the city have become more evident in recent times.
OSL was the first crypto exchange in Hong Kong to secure a license from the Securities and Futures Commission (SFC) in 2020, albeit under a previous voluntary scheme, which allowed it to cater exclusively to professional investors. The new licensing requirements supersede the old ones, permitting exchanges to offer cryptocurrencies with significant market capitalizations, such as Bitcoin and Ether, to retail investors.
Both OSL and HashKey had their licenses upgraded this year, enabling them to serve retail investors in accordance with the new policy. Only five local exchanges have thus far applied for the new Virtual Asset Trading Platform (VATP) license, introduced to enhance market stability and boost investor confidence.
What Landed BC Technology in Hot Water?
Meex Digital Securities became the fifth applicant recently, joining the ranks of the other four license applicants, namely Hong Kong Virtual Asset Exchange, Hong Kong Digital Asset Exchange, Hong Kong BGE, and Victory Fintech. This move by the SFC to introduce a list of current applicants followed a recent financial scandal involving the JPEX crypto exchange, which marred the city’s efforts to develop the local industry. The allegedly fraudulent exchange was the subject of more than 2,500 complaints linked to losses of around HK$1.5 billion.
Several companies with ties to Hong Kong and mainland China have expressed their intent to pursue a license, even if they haven’t formally applied. Hong Kong’s embrace of virtual assets is perceived by some as a means for Chinese firms to facilitate crypto trading, while it remains strictly prohibited on the mainland.
BC Technology Group has refuted a Bloomberg report suggesting that it’s considering the sale of OSL, one of Hong Kong’s two licensed crypto exchanges, following a 20% drop in its stock value on Tuesday. In a filing to the Hong Kong stock exchange, BC Technology Group stated, “The Board wishes to clarify that the contents and statements in the article are factually inaccurate and highly misleading”.
This development comes after Hong Kong expressed its intention to transform into a virtual asset hub, attracting the attention of various exchanges seeking licenses since new regulations came into effect in June. However, recent challenges have emerged in reviving the crypto business in the city.
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OSL: The First Crypto Exchange in Hong Kong
OSL, initially licensed by the Securities and Futures Commission (SFC) in 2020 under a voluntary scheme, was the first crypto exchange in Hong Kong. It was permitted to serve professional investors only. The new licensing requirement allows exchanges to offer cryptocurrencies with substantial market capitalisation to retail investors, superseding the previous scheme.
Both OSL and HashKey upgraded their licenses this year to serve retail investors under the new policy. Only five local exchanges have applied for the new Virtual Asset Trading Platform (VATP) license, introduced to enhance market stability and instill confidence in investors. Meex Digital Securities became the fifth applicant recently, joining Hong Kong Virtual Asset Exchange, Hong Kong Digital Asset Exchange, Hong Kong BGE, and Victory Fintech.
The SFC introduced a list of current applicants following a recent financial scandal involving the JPEX crypto exchange, which marred the city’s efforts to develop the local crypto industry. The alleged fraudulent exchange was associated with more than 2,500 complaints linked to a loss of around HK$1.5 billion.
Hong Kong and Mainland China Expresses Their Interest
Additionally, some companies with ties to Hong Kong and mainland China have expressed their intent to pursue licenses, even if they haven’t formally applied. Hong Kong’s embrace of virtual assets is seen by some as a way for Chinese firms to facilitate crypto trading while it remains strictly banned on the mainland.
Furthermore, exchanges affiliated with two Chinese securities brokers, which received warnings in December about providing investor access to global equities, are also pursuing VATP licenses. One such company, Yax, incubated by Beijing-based Tiger Brokers, is in the early stages of exploration and is closely monitoring regulatory and policy requirements to ensure compliance with Hong Kong’s laws and regulations.
PantherTrade, which appears to have affiliations with Shenzhen-based Futu Holdings, is the other exchange highlighted by Nikkei. The listed director for PantherTrade Holdings in Hong Kong shares a name with a Futu Securities human resources manager, as indicated on LinkedIn.
Despite these developments, the high costs associated with compliance in Hong Kong remain a significant barrier to displacing markets like Singapore as the preferred base of operations for crypto businesses. An informed source estimated that the entire process could cost a company approximately HK$60 million from start to finish.
Conclusion
It’s worth noting that the current applicants primarily focus on professional services. An OSL spokesperson mentioned in a statement last week that “Retail access to trading services on regulated platforms in Hong Kong is still in its early stages”.
“However, we have observed a growing interest from clients in OSL’s services, especially in the wake of recent enforcement actions against unlicensed and unlawful players in Hong Kong”, she further commented.
Based on BC Technology’s mid-year report, the company incurred a net loss of HK$94.7 million in the first half of 2023. This represents a notable improvement compared to losses of HK$312.1 million during the same period in the previous year. The mid-year report also indicates that OSL serves as the primary source of income for the company.
Frequently Asked Questions
What Is BC Technology?
BC Technology (Hong Kong) Limited is an emerging global FinTech innovation firm with a contemplated suite of services including business advisory, full-service brokerage, technology consulting and corporate business solutions. BC Technology provides a one stop solution that merges blockchain technologies with traditional payments networks in the new digital assets’ ecosystem.
What Is OSL Hong Kong?
OSL is a digital asset platform that provides a comprehensive range of services, including brokerage, custody, exchange, and SaaS. It is the world’s first SFC-licensed and insured digital asset platform. OSL holds a highly coveted SFC Type 1 (Dealing in securities) license, making it a fully regulated virtual asset service provider in Hong Kong.
What Did BC Technology Say About the Recent Allegations?
BC Technology, which owns OSL, said that Bloomberg’s report about the pending sale is “Factually inaccurate and highly misleading”, in a filing with the Hong Kong Stock Exchange. Bloomberg initially reported that the exchange was on the market at a valuation of 1 billion Hong Kong dollars ($128 million).
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