From years of losses to profits, is OSL's path difficult to replicate in the new stage of Hong Kong's Web3?

Jessy, Golden Finance

On June 27, OSL Group (0863.HK) revealed that it plans to acquire all the shares of payment company Banxa for approximately HK$486.7 million. On June 26, Hong Kong issued the "Hong Kong Digital Asset Development Policy Declaration 2.0", which proposed four strategic directions with the "LEAP" framework as the core. P stands for partnership and emphasizes regional and international cooperation. OSL's acquisition of Banxa is essentially based on Banxa's 45 licenses that can support its business in these parts of the world, and it is also in line with OSL's plan to vigorously develop PayFi.

According to the 2024 financial report information, OSL Group achieved its first year of profitability after its establishment. OSL, an exchange under OSL Group, is the first licensed exchange in Hong Kong. Earlier, OSL Group belonged to Hong Kong shell king Gao Zhenshun, and was more like a shell company relying on speculation. The company intended to sell in early 2023, until 2024, when it was successfully sold by Bitget's parent company BGX for HK$710 million, and finally achieved profitability in 2024.

A careful review of OSL Group's financial report will reveal that in 2024, OSL Group's digital asset market business revenue was HK$283 million, a year-on-year increase of 73%, mainly from over-the-counter transactions, RFQ transactions, exchange business and custody services; digital asset technology infrastructure business revenue was HK$92 million, a substantial year-on-year increase of 415%, and the main source of income included SaaS services. OSL's turnaround is also a mirror reflecting the current status of Web3 development in Hong Kong. With the orderly advancement of virtual currency exchanges for retail investors, spot ETFs for Bitcoin and Ethereum, stablecoins and other businesses in Hong Kong, the entire crypto ecosystem in Hong Kong has become more and more perfect.

For OSL, where is the key node of profitability? From loss to profit, does it also indicate 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", OSL began to look for potential buyers in the market during the Spring Festival in 2023.

OSL's predecessor was a company listed on the Hong Kong Stock Exchange Main Board in 2015 - Brand China, which is a company mainly engaged in advertising and marketing and other businesses, providing customized advertising and marketing services to customers in the automotive and other industries.

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 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". He is famous in the Hong Kong capital market for his ability to acquire shell resources of listed companies with poor performance at low prices and then make profits through asset restructuring. He has successfully operated many similar transactions before, such as selling China Culture (later renamed Alibaba Pictures) to Alibaba, helping the latter to layout the cultural industry, and he also made considerable profits from it.

The acquisition of Brand China, the subsequent establishment of an exchange internally, the name change and a series of other measures are actually to enhance the company's value and market influence through business integration and strategic adjustments, and when the time is right, realize capital exit through equity transfer or other means to earn lucrative profits.

OSL subsequently obtained a virtual asset license issued by the Hong Kong Securities and Futures Commission on December 15, 2020, namely a Type 1 (securities trading) and Type 7 (providing automated trading services) regulated activity license, becoming the first licensed institution in Hong Kong.

Combined with the 2021 and 2022 financial reports, BC Technology Group may seek to sell the OSL exchange in early 2023 because the revenue of the digital asset business has dropped sharply from HK$278 million to HK$71 million, trading profits are weak, and compliance and technology investment are high (administrative expenses increased to HK$574 million). At the same time, the company's strategy focuses on high-growth SaaS services (revenue increased by 197.3% to HK$30 million), and the sluggish crypto market has put pressure on the valuation of the exchange. The sale of OSL can recover funds to ease 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 to approximately HK$710 million in new shares. BGX holds 29.97% of the shares and becomes OSL's largest shareholder. The nearly one-year-long journey of seeking has finally come to an end. After that, BC Technology Group, the parent company of OSL Exchange, was renamed OSL Group.

At that time, Bitget was unable to meet Hong Kong's strict virtual asset trading platform license review requirements. The BitgetX.hk platform launched for Hong Kong users ceased operations and permanently withdrew from the Hong Kong market on December 13, 2023. Due to the high cost of applying for a license, slow progress and high uncertainty, BGX invested in OSL, using its existing licenses and compliance operating qualifications to achieve the purpose of quickly deploying the Hong Kong market. This is also seen as Bitget's "curve to save the country" strategy when it is difficult to obtain a license directly.

The key node from loss to profit - BGX's HK$710 million capital injection

After receiving the capital injection from BGX, OSL's development has indeed ushered in a huge change.

BGX completed a strategic investment of HK$710 million in January 2024, and since then the company's performance and business structure have been significantly improved. The financial report shows that total revenue in 2024 increased by 78.6% year-on-year to HK$375 million, turning from a net loss to a profit of HK$47 million, and operating cash flow turned from a net outflow of HK$686 million to a net inflow of HK$379 million, and the debt-to-asset ratio dropped from 72.6% to 31.1%. It is also thanks to the capital injection that the company's cash reserves increased to HK$635 million.

After BGX injected capital, it gradually introduced a number of talents with rich experience in the cryptocurrency and Internet finance industries. Gao Zhenshun also officially resigned as executive director in August 2024.

The major change in senior management has injected vitality into OSL, and the turnaround is closely related to the huge transformation of the company's strategy. It focuses on core businesses and divests non-core assets, such as selling Shanghai Jingwei and completely withdrawing from the business park management business. Accelerate the focus on digital asset trading and SaaS services, with the former generating revenue of HK$263 million (+81.6%) and the latter generating revenue of HK$92 million (+415%). The pace of globalization also accelerated in 2024. It used the capital injection funds to acquire the Japanese licensed platform OSL Japan and obtain the Australian license. At the same time, it expanded institutional clients and retail markets through BGX resources, and promoted the transformation of business to technology output and global licensed trading.

Another thing worth noting is that on April 15, 2024, OSL cooperated with China Asset Management (Hong Kong) and Harvest International to launch a digital asset spot ETF. In this cooperation, OSL Digital Securities Co., Ltd. serves as the virtual asset trading and sub-custody partner of China Asset Management (Hong Kong) and Harvest International. OSL provides blockchain infrastructure to support investors to directly participate in investment with virtual assets, playing a key role in trading and custody.

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

From relying on transaction fees in the early days, to the 2024 financial report showing that 81.6% of its revenue comes from digital asset transactions (mainly institutional services), and the 415% increase in SaaS revenue comes from technology output. This transformation from a "trading platform" to an "infrastructure service provider" corresponds precisely to the characteristics of B-side services first under the Hong Kong regulatory framework.

Hong Kong opens a new stage of Web3, but OSL's path is difficult to replicate

OSL has gone from being deeply mired in losses and seeking to be sold to turning losses into profits in just one year after BGX's capital injection, and has shown strong growth momentum and a clear expansion blueprint. Its transformation is by no means accidental and difficult to replicate.

Its transformation path deeply reflects the key turning point of Hong Kong's Web3 ecology from policy brewing and compliance exploration to substantive implementation and initial prosperity. OSL's digital asset trading revenue surged by 81.6% and SaaS service revenue soared by 415% in 2024, which is a direct reflection of the gradual release of policy dividends.

OSL's early "shell company" color was strong, and its value was largely tied to the license of "Hong Kong's first licensed exchange". The performance explosion after BGX took over proved that its value has shifted from "license holder" to "effective operator of license value and builder of business capabilities". Profits come from real transaction volume growth, SaaS service revenue and technology output. The crypto industry has begun to move from a simple "compliance concept" to actual "business implementation" and "revenue creation".

Looking at OSL's journey over the past few years, especially its inclination towards institutional business, it can be seen that OSL's development strategy is no longer limited to being an exchange. Its business map clearly outlines the profile of a comprehensive Web3 infrastructure service provider of "transaction + custody + technology solutions (SaaS) + payment (Banxa) + global compliance network". This reflects the increasing maturity of the Hong Kong Web3 ecosystem, and participants have begun to build a more complex and more synergistic business matrix to meet the increasingly diverse needs of institutions and high-net-worth clients.

OSL's series of acquisitions and global expansion may prove that Hong Kong's policy advantages may enable more institutions to participate in the competition in the global Web3 market. And OSL's transformation from loss to profit also illustrates that under the guidance of a clear regulatory framework, through strategic capital empowerment, focusing on core businesses, divesting redundant burdens, and actively carrying out global compliance expansion and ecological cooperation, Hong Kong's licensed Web3 institutions are fully capable of achieving sustainable profit growth.

The development of Hong Kong's Web3 has entered a new stage characterized by actual business implementation, institutional capital drive, and global resource integration. In this stage, competition will also be more intense. OSL's phased profitability began with an investment of HK$710 million and a major change in senior management as the development tentacles. The cost is high, and it is a game for big capital.

In Hong Kong, there are nearly 50 institutions that can provide virtual asset trading services with licenses, but not all of them are as wealthy as BGX. OSL took the initiative and served a large number of institutional clients, and it is no longer easy for latecomers to get a share of the pie in this market.