Continuous losses to profitability: Is it harder to replicate OSL's path in Hong Kong's new Web3 phase?

Jessy, Golden Finance

On June 27, the OSL Group (0863.HK) revealed its plan to acquire all shares of the payment company Banxa, investing approximately HKD 486.7 million. On June 26, Hong Kong released the "Hong Kong Digital Asset Development Policy Declaration 2.0," which proposed four strategic directions centered around the "LEAP" framework, where P represents Partnerships, emphasizing regional and international cooperation. The essence of OSL's acquisition of Banxa is also based on Banxa holding 45 licenses that enable it to conduct business in these locations globally, and it aligns with OSL's upcoming plans to vigorously develop PayFi.

According to the financial report information for 2024, the OSL Group achieved its first-year profit since its establishment. The OSL exchange under the OSL Group is the first licensed exchange in Hong Kong. The earlier OSL Group was affiliated with Hong Kong shell king Gao Zhenshun and was more like a shell company relying on speculation. At the beginning of 2023, the company intended to sell itself, and by 2024, it was successfully sold with an investment of 710 million HKD from BGX, finally achieving profitability in 2024.

A careful review of OSL Group's financial report reveals that in 2024, OSL Group's digital asset market business revenue was HKD 283 million, representing a year-on-year increase of 73%. The main sources of income included over-the-counter trading, request-for-quote (RFQ) trading, exchange business, and custody services; the revenue from the digital asset technology infrastructure business was HKD 92 million, a significant year-on-year increase of 415%, with the main sources of income being SaaS services. OSL's return to profitability also reflects the current state of Web3 development in Hong Kong. With the orderly advancement of various businesses in Hong Kong, such as virtual currency exchanges for retail investors, spot ETFs for Bitcoin and Ethereum, stablecoins, etc., Hong Kong's entire crypto ecosystem is becoming increasingly complete.

Where are the key turning points for OSL to become profitable? Does the transition from loss to profit also indicate that the Web3 development in Hong Kong has entered a new stage?

From a "shell" company to being acquired by BGX

According to a report by Tencent's "Qianwang", OSL began looking for potential buyers for acquisition in the market starting from the 2023 Spring Festival.

The predecessor of OSL was a company listed on the Hong Kong Stock Exchange main board in 2015 - Brand China, which primarily engaged in advertising and marketing services, providing customized advertising and marketing services for clients in the automotive and other industries.

In early 2018, the famous shell king acquired 74.48% of the publicly issued shares of Brand China through its subsidiary East Harvest, becoming the actual controller of Brand China. It was also after this that the OSL exchange was established within Brand China. In 2019, Brand China was renamed BC Technology.

Gao Zhenshun is known as the "Shell King" and is famous in the Hong Kong capital market for his expertise in acquiring poorly performing listed companies' shell resources at low prices, and then profiting from asset restructuring. He has previously successfully operated multiple similar transactions, such as selling China Culture (later renamed Alibaba Pictures) to Alibaba, helping the latter to lay out its cultural industry strategy, and he himself gained considerable profits from it.

The acquisition of the brand in China, followed by the establishment of an exchange internally, the renaming, and a series of other measures, are all aimed at enhancing the company's value and market influence through business integration and strategic adjustments. When the timing is right, capital exit will be realized through equity transfer or other means to earn substantial profits.

Subsequently, OSL obtained a virtual asset license issued by the Hong Kong Securities and Futures Commission on December 15, 2020, namely the Type 1 (Securities Trading) and Type 7 (Providing Automated Trading Services) regulated activity licenses, becoming the first licensed institution in Hong Kong.

In conjunction with the financial reports of 2021 and 2022, BC Technology Group sought to sell the OSL exchange at the beginning of 2023 due to a sharp decline in digital asset business revenue from HKD 278 million to HKD 71 million, weak trading profits, and high compliance and technology costs (administrative expenses increased to HKD 574 million). At the same time, the company's strategy focuses on high-growth SaaS services (revenue increased by 197.3% to HKD 30 million). Additionally, the downturn in the cryptocurrency market has put pressure on the valuation of exchanges, so selling OSL can recoup funds to alleviate the debt-to-asset ratio (73.8%) and optimize resource allocation.

Until November 14, 2023, BGX announced a strategic investment in OSL's parent company, BC Technology Group, subscribing to approximately HKD 710 million in new shares, bringing BGX's shareholding to 29.97%, making it the largest shareholder of OSL. The nearly year-long search has finally come to an end. After this, the parent company of OSL Exchange, BC Technology Group, was also renamed OSL Group.

Key turning point from loss to profit - HK$710 million investment in BGX

After receiving the investment from BGX, OSL has indeed welcomed significant changes in its development.

BGX completed a strategic investment of HKD 710 million in January 2024, after which the company's performance and business structure improved significantly. The financial report shows that total revenue in 2024 increased by 78.6% year-on-year to HKD 375 million, turning from a net loss to a profit of HKD 47 million. Operating cash flow changed from a net outflow of HKD 686 million to a net inflow of HKD 379 million, and the debt-to-asset ratio decreased from 72.6% to 31.1%. Thanks to the injection of funds, the company's cash reserves increased to HKD 635 million.

After the investment in BGX, several talents with rich experience in the cryptocurrency and internet finance industries were gradually introduced, and Gao Zhenshun officially stepped down as executive director in August 2024.

The major personnel reshuffle at the senior management level has injected vitality into OSL, and the turnaround from loss to profit is closely related to the company's significant strategic transformation. It focuses on core business and divests non-core assets, such as the sale of Shanghai Jingwei, completely exiting the commercial park management business. The focus on digital asset trading and SaaS services has accelerated, with the former generating revenue of HKD 263 million (+81.6%) and the latter generating revenue of HKD 92 million (+415%). The pace of globalization is also accelerating in 2024, as it uses investment funds to acquire the licensed platform OSL Japan and obtain an Australian license. At the same time, it expands institutional clients and the retail market through BGX resources, driving a transformation towards technology output and licensed global trading.

Another point of interest is that on April 15, 2024, OSL will collaborate with Huaxia Fund (Hong Kong) and Harvest Global Investments to launch a digital asset spot ETF. In this collaboration, OSL Digital Securities Limited will serve as the virtual asset trading and sub-custody partner for Huaxia Fund (Hong Kong) and Harvest Global Investments. OSL will provide blockchain infrastructure to support investors in directly participating in investments with virtual assets, playing a key role in the trading and custody process.

By 2025, OSL will continue its global expansion and vigorously develop PayFi. The acquisition of Banxa is a testament to this, as Banxa focuses on payment technology research and development, possessing technological accumulations such as payment gateways and API interfaces. Its B2B payment solutions can complement OSL's cryptocurrency trading platform, helping OSL enhance its one-stop service capabilities. This also accelerates OSL's globalization strategy, as OSL has previously acquired Japan's CoinBest and a European digital asset platform, and this acquisition of Banxa fills the gap in the North American market. Banxa operates in Europe, North America, Australia, and other regions, with a wide market coverage. Through this acquisition, OSL has formed a triangular layout in the Asia-Pacific, Europe, and North America. Banxa holds 45 international licenses, covering key markets such as Canada and Lithuania.

From the early reliance on trading fees, to the 2024 financial report showing that 81.6% of its revenue comes from digital asset trading (mainly institutional services), the 415% growth in SaaS revenue comes from technology output. This transformation from a "trading platform" to an "infrastructure service provider" corresponds precisely with the characteristics of B-end services taking the lead under the Hong Kong regulatory framework.

Hong Kong Begins a New Phase in Web3, but the Path of OSL is Difficult to Replicate

OSL's transformation from being mired in losses and seeking a sale to achieving profitability within just a year after receiving investment from BGX, while demonstrating strong growth momentum and a clear expansion blueprint, is certainly not a coincidence and is difficult to replicate.

Its transformation journey profoundly reflects the critical turning point of Hong Kong's Web3 ecosystem from policy brewing and compliance exploration to substantial implementation and initial prosperity. The 81.6% surge in digital asset trading revenue and the 415% increase in SaaS service revenue for OSL in 2024 are direct manifestations of the gradual release of policy dividends.

The early "shell company" nature of OSL was prominent, and its value was largely based on the "Hong Kong's first licensed exchange" license. The performance explosion after BGX took over proves that its value has shifted from being a "license holder" to an "effective operator of license value and a builder of business capabilities." Profitability comes from real trading volume growth, SaaS service income, and technology output, as the cryptocurrency industry begins to move from a purely "compliance concept" to actual "business implementation" and "revenue generation."

Looking at OSL's journey over the past few years, especially its tilt towards institutional business, it is evident that OSL's development strategy is no longer limited to being just an exchange. Its business landscape clearly outlines the profile of a comprehensive Web3 infrastructure service provider with "Trading + Custody + Technical Solutions ( SaaS ) + Payment ( Banxa ) + Global Compliance Network". This reflects the increasing maturity of Hong Kong's Web3 ecosystem, as participants begin to build more complex and synergistic business matrices to meet the increasingly diverse needs of institutional and high-net-worth clients.

OSL's series of acquisitions and global expansion may confirm that Hong Kong's policy advantages can encourage more institutions to participate in the competition of the global Web3 market. OSL's transition from loss to profit illustrates that, under a clear regulatory framework, by leveraging strategic capital, focusing on core business, shedding redundant burdens, and actively pursuing global compliance expansion and ecosystem collaboration, licensed Web3 institutions in Hong Kong are fully capable of achieving sustainable profit growth.

The development of Web3 in Hong Kong has entered a new stage characterized by actual business implementation, institutional funding, and the integration of global resources. In this stage, competition will also become more intense. The phased profitability of OSL began with an investment of 710 million HKD, with a significant turnover in leadership acting as a catalyst for development. High costs make it a game for large capital.

In Hong Kong, there are currently nearly fifty institutions that can provide licensed virtual asset trading services, but not all are as financially strong as BGX. OSL took the initiative, serving a large number of institutional clients, making it difficult for newcomers to carve out a piece of the market.