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

Jessy, Golden Finance

On June 27, OSL Group (0863.HK) revealed its plan to acquire all shares of 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 enable it to conduct business in these locations globally, which aligns with OSL's plan to vigorously develop PayFi.

According to the financial report information for 2024, OSL Group achieved profitability in its first year of establishment. OSL, the exchange under OSL Group, is the first licensed exchange in Hong Kong. Previously, OSL Group was affiliated with Hong Kong shell king Gao Zhenshun and was more like a shell company relying on hype. At the beginning of 2023, the company intended to sell itself, and until 2024, it was successfully sold with an investment of HKD 710 million from 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 was 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 digital asset technology infrastructure business was HKD 92 million, a significant year-on-year increase of 415%, with the main 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 advancement of virtual currency exchanges targeting retail investors, spot ETFs for Bitcoin and Ethereum, stablecoins, and various other businesses in Hong Kong, the entire crypto ecosystem in Hong Kong is becoming increasingly完善.

Where is the key point of profitability for OSL? 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 during the 2023 Spring Festival.

OSL was formerly a Hong Kong Stock Exchange main board listed company in 2015 — Brand China. This is a company mainly 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 after this that the OSL exchange was established internally 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 low-cost acquisitions of underperforming listed company shell resources, followed by asset restructuring for profit. He has previously successfully operated several similar transactions, such as selling Cultural China (later renamed Alibaba Pictures) to Alibaba, helping the latter to lay out in the cultural industry sector, while also gaining considerable profits himself.

The acquisition of the brand in China, followed by the establishment of an exchange internally, renaming, and a series of measures, are actually aimed at enhancing the company's value and market influence through business integration and strategic adjustments. When the timing is right, the intention is 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 a Type 1 (Securities Trading) and Type 7 (Providing Automated Trading Services) regulated activity license, becoming the first licensed institution in Hong Kong.

In conjunction with the financial reports for 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 investments (administrative expenses rose 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 crypto market has put pressure on the valuation of exchanges, and the sale of OSL could 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 stake to 29.97%, making it the largest shareholder of OSL. The nearly year-long search journey has finally come to an end. After this, OSL exchange's parent company, BC Technology Group, was renamed OSL Group.

Key Turning Point from Loss to Profit - HKD 710 million Investment in BGX

After receiving the investment from BGX, the development of OSL has indeed welcomed 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. Financial reports show that total revenue in 2024 increased by 78.6% year-on-year to HKD 375 million, reversing 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 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 gradually introduced, and Gao Zhenshun officially stepped down as executive director in August 2024.

The major reshuffle at the top has injected vitality into OSL, and turning losses into profits is closely related to the company's significant strategic transformation. It focuses on core businesses and divests non-core assets, such as the sale of Shanghai Jingwei, completely exiting the commercial park management business. The company accelerates its focus on digital asset trading and SaaS services, with revenue from the former reaching HKD 263 million (+81.6%) and the latter reaching 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, promoting a transformation towards technology output and global licensed trading.

Another noteworthy point is that on April 15, 2024, OSL will collaborate with Hua Xia Fund (Hong Kong) and Harvest International to launch a digital asset spot ETF. In this cooperation, OSL Digital Securities Limited will serve as the virtual asset trading and sub-custody partner for Hua Xia Fund (Hong Kong) and Harvest International. OSL provides blockchain infrastructure to support investors in directly participating 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 technological accumulations such as payment gateways and API interfaces. Its B2B payment solution can complement OSL's cryptocurrency trading platform, helping OSL enhance its one-stop service capability. This also accelerates OSL's globalization layout. Previously, OSL had 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 this acquisition, OSL has formed a triangular layout covering the Asia-Pacific, Europe, and North America. Banxa holds 45 international licenses, covering key markets such as Canada and Lithuania.

From relying on trading fees in the early days, to a 2024 financial report showing that 81.6% of its revenue comes from digital asset trading (primarily institutional services), the 415% growth in SaaS revenue comes from technology output. This transformation from a “trading platform” to an “infrastructure service provider” precisely corresponds 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 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 path 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% spike in SaaS service revenue for OSL in 2024 are direct manifestations of the gradual release of policy dividends.

The early stage of OSL was heavily characterized as a “shell company,” with its value largely tied to 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 being an “effective operator of license value and a builder of business capabilities.” Profitability comes from real growth in trading volume, SaaS service revenue, and technology output, as the crypto 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 encompassing “trading + custody + technology solutions ( SaaS ) + payment ( Banxa ) + global compliance network.” This reflects the increasing maturity of the Hong Kong Web3 ecosystem, as participants begin to construct 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 global Web3 market competition. OSL's transition from loss to profit also illustrates that, under a clear regulatory framework, empowered by strategic capital, focusing on core business, shedding redundant burdens, and actively pursuing global compliance expansion and ecosystem 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 practical implementation of business, institutional capital-driven growth, and the integration of global resources. In this stage, competition will become even fiercer, and the phased profitability of OSL begins with an investment of HKD 710 million, with a major reshuffle at the top level serving as a touchpoint for development. High costs make it a game for big capital.

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