Years of losses to profitability: Is the path of OSL in Hong Kong's new Web3 stage difficult to replicate?

Jessy, Golden Finance

On June 27, 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 focused on Banxa holding 45 licenses that support its business operations in these global locations, and it aligns with OSL's future plans to vigorously develop PayFi.

According to the financial report information for 2024, OSL Group achieved its first annual profit since its establishment. The exchange under OSL Group, OSL, is Hong Kong's first licensed exchange. Previously, 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 successfully received an investment of 710 million HKD from Bitget's parent company BGX, finally achieving profitability in 2024.

A close examination of OSL Group's financial report reveals that in 2024, OSL Group's digital asset market business revenue reached HKD 283 million, a year-on-year increase of 73%. The main revenue sources include 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, representing a substantial year-on-year increase of 415%, with primary revenue sources including SaaS services. OSL's turnaround from losses to profits also reflects the current state of Web3 development in Hong Kong. With the orderly advancement of virtual currency exchanges aimed at retail investors, spot ETFs for Bitcoin and Ethereum, stablecoins, and other businesses in Hong Kong, the entire crypto ecosystem is becoming increasingly complete.

Where does the key point of profitability appear for OSL? Does the transition from loss to profit also signify that the development of Web3 in Hong Kong has entered a new stage?

From a "shell" company to being acquired by Bitget's parent company

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

OSL's predecessor was a company listed on the Hong Kong Stock Exchange main board in 2015 - China Brand, 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, through its subsidiary East Harvest, acquired 74.48% of the publicly issued shares of Brand China, becoming the actual controller of Brand China. It was 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 "King of Shells" and is famous in the Hong Kong capital market for his expertise in acquiring poorly performing listed companies at low prices, then profiting through asset restructuring. He has successfully operated several similar transactions in the past, such as selling Cultural China (later renamed Alibaba Pictures) to Alibaba, helping the latter to lay out its strategy in the cultural industry, and he himself has gained considerable profit from it.

The acquisition of the brand in China, followed by a series of measures such as establishing an exchange internally and renaming, is actually aimed at enhancing the company's value and market influence through business integration and strategic adjustments. When the time is right, capital exit will be achieved 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, which includes 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 revenue from digital asset business from HKD 278 million to HKD 71 million, weak trading profits, and high compliance and technology investments (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 sluggish cryptocurrency market has put pressure on exchange valuations; selling OSL could recoup funds to alleviate the debt-to-asset ratio (73.8%) and optimize resource allocation.

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

At that time, Bitget was unable to meet the stringent license review requirements for virtual asset trading platforms in Hong Kong, so its BitgetX.hk platform for Hong Kong users ceased operations and permanently exited the Hong Kong market starting December 13, 2023. Due to the high cost, slow progress, and great uncertainty of applying for a license, BGX invested in OSL to leverage its existing license and compliance operating qualifications to achieve a rapid layout in the Hong Kong market. This is also seen as Bitget's "curve-saving" strategy in the face of difficulties in obtaining a license directly.

Key Node of Turning Loss into Profit - HKD 710 Million Investment in BGX

After receiving 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 a net loss into a profit of HKD 47 million, operating cash flow shifted 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 capital injection, 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 significant overhaul of the senior management has injected vitality into OSL, and the realization of turning losses into profits is closely related to the company's strategic transformation. The focus is on core business while divesting non-core assets, such as the sale of Shanghai Jingwei, completely exiting the commercial park management business. The acceleration of focusing on digital asset trading and SaaS services has led to revenues of HKD 263 million (+81.6%) for the former and HKD 92 million (+415%) for the latter. The pace of globalization is also accelerating in 2024, with funding being used to acquire the licensed platform OSL Japan and obtain a license in Australia. Additionally, through BGX resources, the company is expanding its institutional client base and retail market, driving the business towards technology output and global licensed trading.

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

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 a technical accumulation of 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 has also accelerated OSL's globalization strategy. OSL has previously acquired Japan's CoinBest and a European digital asset platform, and the acquisition of Banxa fills the gap in the North American market. Banxa operates in Europe, North America, Australia, and other regions, with extensive market coverage. Through the 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, the 2024 financial report shows that 81.6% of its revenue comes from digital asset trading (mainly institutional services), while the 415% growth in SaaS revenue comes from technology output. This transformation from a "trading platform" to an "infrastructure service provider" corresponds precisely to the characteristic of B-end services taking the lead under the Hong Kong regulatory framework.

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

OSL's transformation from being deeply mired in losses and seeking a sale to turning a profit within just one 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 key turning point of Hong Kong's Web3 ecosystem from policy incubation and compliance exploration to actual implementation and preliminary prosperity. The 81.6% surge in digital asset trading revenue and the 415% spike in SaaS service revenue for OSL in 2024 are direct manifestations of the gradual release of policy dividends.

The early OSL was heavily characterized as a "shell company," and its value was largely attributed to the "first licensed exchange in Hong Kong" license. The explosive performance after BGX took over proves that its value has shifted from being a "license holder" to an "effective operator of license value and builder of business capabilities." Profit sources come from real trading volume growth, SaaS service revenue, and technology output. The cryptocurrency industry is beginning 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 focus on 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 + technology solutions ( SaaS ) + payment ( Banxa ) + global compliance network." This reflects the maturity of Hong Kong's Web3 ecosystem, where participants are beginning 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 demonstrate that Hong Kong's policy advantages could encourage more institutions to participate in the competition of the global Web3 market. The transition of OSL from loss to profit also illustrates that, under a clear regulatory framework, through strategic capital empowerment, focusing on core business, shedding redundant burdens, and actively pursuing global compliance expansion and ecological cooperation, 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 the implementation of actual businesses, institutional funding, and global resource integration. In this stage, competition will become even more intense. OSL's phased profitability begins with an investment of 710 million HKD, with significant personnel changes at the top serving as the catalyst for development. High costs make it a game for big capital.

In Hong Kong, there are already nearly fifty institutions licensed to provide virtual asset trading services, and not all of them are as financially strong as BGX. OSL took the lead and served a large number of institutional clients, making it difficult for later entrants to carve out their share of the market.