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

Jessy, Golden Finance

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

According to the financial report information for 2024, OSL Group achieved its first-year profit after establishment. The exchange under OSL Group, OSL, is Hong Kong's first licensed exchange. 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, and by 2024, it was successfully invested in and sold by BGX for 710 million HKD, 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 sources of revenue 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, a substantial year-on-year increase of 415%, with primary revenue sources including SaaS services. OSL's turnaround from loss to profit also reflects the current state of Web3 development in Hong Kong. With the orderly promotion of various businesses such as virtual currency exchanges aimed at retail investors, Bitcoin and Ethereum spot ETFs, and stablecoins in Hong Kong, the entire crypto ecosystem in Hong Kong is becoming increasingly complete.

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

From a 'shell' company to being acquired by BGX

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

OSL was formerly 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 automotive and other industry clients.

In early 2018, the famous shell king acquired 74.48% of the issued shares of Brand China through its subsidiary East Harvest, 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 "Shell King" and is famous in the Hong Kong capital market for his expertise in acquiring poorly performing listed company shell resources at low prices, and then profiting through asset restructuring. He has successfully executed several similar transactions before, such as selling China Cultural (later renamed Alibaba Pictures) to Alibaba, helping the latter to lay out its cultural industry strategy, while also gaining considerable profits himself.

Acquiring the brand China, and subsequently establishing an exchange internally, renaming it, and a series of other measures, are actually all aimed at enhancing the company's value and market influence through business integration and strategic adjustments. When the timing is right, the company plans to achieve capital exit 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, specifically the Type 1 (Securities Trading) and Type 7 (Providing Automated Trading Services) regulated activity licenses, becoming the first licensed institution in Hong Kong.

In light of the financial reports for 2021 and 2022, BC Technology Group sought to sell the OSL exchange in early 2023 due to a sharp decline in digital asset business revenue from HKD 278 million to HKD 71 million, poor 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). Coupled with the sluggish cryptocurrency market leading to pressure on exchange valuations, selling OSL could free up 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, with BGX's shareholding reaching 29.97%, making it the largest shareholder of OSL. The nearly one-year 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.

Key Turning Point from Loss to Profit – HKD 710 Million Investment in BGX

After receiving investment from BGX, OSL's development has indeed ushered in significant changes.

BGX completed a strategic investment of HKD 710 million in January 2024, after which the company's performance and business structure significantly improved. 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 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 industry were introduced one after another, and Gao Zhenshun officially stepped down as executive director in August 2024.

The major leadership change has injected vitality into OSL, and the turnaround from loss to profit is closely related to the company's strategic transformation. It focuses on core businesses and divests non-core assets, such as selling Shanghai Jingwei and completely exiting the commercial park management business. The company accelerates its focus on digital asset trading and SaaS services, 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 the 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, promoting the transformation of its business towards technology output and global licensed 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 serves as the virtual asset trading and sub-custody partner for Huaxia Fund (Hong Kong) and Harvest Global Investments. OSL provides blockchain infrastructure to support investors in directly participating in investments using 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 technical 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 capability. This also accelerates OSL's globalization strategy, as OSL has previously acquired Japan's CoinBest and a European digital asset platform, with this acquisition of Banxa filling the gap in the North American market. Banxa operates in Europe, North America, Australia, and other regions, with a wide 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 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 transition from a "trading platform" to an "infrastructure service provider" corresponds precisely to the characteristics of B-end services leading under the Hong Kong regulatory framework.

Hong Kong opens a new phase in Web3, but the path of OSL is hard 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 transformational 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 OSL's digital asset trading revenue and the 415% spike in SaaS service revenue 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 based on the "first licensed exchange in Hong Kong" 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 builder of business capabilities." Profits come from real trading volume growth, SaaS service income, and technology output. The cryptocurrency industry is beginning to transition 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 clear 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 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 confirm that Hong Kong's policy advantages could encourage more institutions to participate in the global Web3 market competition. 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 ecosystem cooperation, licensed Web3 institutions in Hong Kong can fully achieve sustainable profit growth.

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

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