Hong Kong brokers are "rushing into" the crypto space

Written by: Zhou Zhou, Foresight News

On the Victory Securities APP, investors can now directly purchase cryptocurrencies.

In the headquarters office located in Sheung Wan, Hong Kong, the founder of VDX spoke to me. VDX is an affiliate of Victory Securities (a well-established Hong Kong brokerage firm) and is currently applying for a cryptocurrency license in Hong Kong. Across from the VDX office is another cryptocurrency exchange: HKBGE. Looking out from the office's floor-to-ceiling windows, there is a vast sea, with the bustling urban area of Kowloon and Victoria Harbour on the other side.

This year, with Hong Kong's support for the cryptocurrency market, more and more Hong Kong brokerages are expanding into cryptocurrency services, including: Futu Securities, Tiger Brokers, Victory Securities, Interactive Brokers, Nan Hua Securities, ChangQiao Securities, Fuqiang Securities, and Huafu Jianye Securities. These brokerages are becoming the first institutions to provide cryptocurrency services to users.

They are rushing into the cryptocurrency industry, hoping to bring over 4 million Hong Kong stock investors into the crypto world, with some predicting that soon they will be able to directly purchase cryptocurrencies on their commonly used stock trading apps. A trend is forming, and some Hong Kong stock platforms have already opened up cryptocurrency purchases to users.

This brings some new variables to the increasingly quiet Hong Kong stock market. Data shows that in 2022, there were 4.65 million active trading users in the Hong Kong stock market, and these users are expected to be referred to licensed compliant cryptocurrency exchanges in Hong Kong, such as HashKey and OSL, on the stock platforms they are familiar with. Millions of Hong Kong stock users are expected to encounter cryptocurrencies like Bitcoin and Ethereum through stock platforms.

"This could bring tens of millions of users trading Hong Kong stocks on these (stock) platforms into the cryptocurrency market." said Wong Siu-ki, Chief Operating Officer of the licensed virtual asset exchange HashKey Group. Recently, HashKey has been negotiating with about five local Hong Kong brokerages to establish entry points related to HashKey's cryptocurrency trading services. Another licensed cryptocurrency exchange, OSL, has also reached cooperation with nearly five brokerages. Additionally, there are institutions in the Hong Kong securities industry that are directly investing in or establishing independent cryptocurrency companies.

They are not only focused on the 4 million active Hong Kong stock investors and the less than 10 million Hong Kong citizens, but behind this, the vast market of over 4 billion people in Asia may be their true target.

Eight Immortals Cross the Sea, Each Showing Their Powers

Who will become the largest cryptocurrency exchange in Hong Kong? When I asked the founder of a cryptocurrency exchange, his answer was Futu.

Futu was once the largest internet brokerage in China, known for its convenient trading of Hong Kong and US stocks, but it has since been restricted from developing in mainland China, so it has shifted its focus to overseas markets such as Hong Kong, Singapore, and the United States. Currently, Futu Holdings has over 20 million users globally, and Futu Securities is the largest retail brokerage in Hong Kong, with its Hong Kong users accounting for over 40% of the local adult population.

An industry insider revealed to Foresight News: Futu's cryptocurrency trading system is already in place and is applying for a license from the SFC (Securities and Futures Commission of Hong Kong). Futu stated to Foresight News: As a leading retail brokerage in Hong Kong, we will continue to pay attention to relevant developments in the industry.

Reports have analyzed that Futu's cryptocurrency exchange is called PantherTrade, which was registered in March this year, and experienced executive Chen Zhihu was appointed as a director in September. Futu's emphasis on cryptocurrency business is no longer news in the industry.

During a recent trip to Singapore for a conference, I randomly interviewed some locals and found that some Singaporeans use Futu's moomoo to trade cryptocurrencies, making moomoo one of the largest cryptocurrency trading platforms in Singapore.

Tiger Brokers is also not to be outdone; as the two largest internet brokerages in China, Tiger and Futu have been in a competitive race, and it is actively expanding its cryptocurrency business overseas.

According to Hong Kong's Ta Kung Pao, Tiger Brokers (Hong Kong) Executive Director Chen Jixian expressed in April this year the intention to apply for a cryptocurrency trading license. The latest news in October from Nikkei Asia indicates that the subsidiaries of Tiger Brokers and Futu Securities are attempting to apply for a Hong Kong Virtual Asset Service Provider (VASP) license.

There are reports that Tiger Brokers has a close relationship with the Hong Kong cryptocurrency exchange Yax. Yax is a platform incubated by a Tiger Brokers employee, established in June 2022, and officially launched its products in early 2023.

Brokerages entering the Hong Kong cryptocurrency market come from diverse backgrounds and identities. In addition to "Chinese internet brokerages" like Futu and Tiger that have left mainland China for overseas development, there are also Hong Kong brokerages with US backgrounds like Interactive Brokers, Hong Kong brokerages with local backgrounds such as Victory Securities and Fuqiang Securities, as well as more low-profile brokerages with Chinese backgrounds.

Interactive Brokers is a representative of US brokerages entering the cryptocurrency industry. After US policies supported cryptocurrencies, it was one of the first brokerages (in 2021) to develop cryptocurrency services in the US, and it also became one of the first (in early 2023) to develop cryptocurrency services in Hong Kong after the local policies supported cryptocurrencies.

The cryptocurrency services provided by Interactive Brokers are supported by the virtual asset trading platform OSL, with commissions ranging from 0.20% to 0.30% of the transaction value, depending on the monthly trading volume, with a minimum order fee of $2.25. Notably, users can trade virtual assets and check their balances on the Interactive Brokers platform. In other words, a Hong Kong stock investor can trade Bitcoin and Ethereum on this single stock platform, as well as buy and sell stocks, options, futures, bonds, mutual funds, and ETFs.

This may become the norm for the future of the Hong Kong securities industry, where stock investors can directly purchase cryptocurrencies on their stock apps.

Unlike the US-backed Interactive Brokers, Victory Securities is a Hong Kong-based brokerage listed in Hong Kong, providing comprehensive financial services as a fully licensed brokerage, and is quite active in the cryptocurrency market, with the slogan: "Buying stocks and buying coins, equally simple."

Victory Securities' cryptocurrency affiliate is VDX (Victory Fintech Company Limited). The founder of VDX told me that Victory Securities' APP now supports users to purchase stocks and cryptocurrencies on one platform simultaneously. He also mentioned that unlike other cryptocurrency exchanges that focus on retail, VDX only focuses on B2B users.

The Hong Kong Financial Industry Stirred by a "Strong Medicine"

The Hong Kong financial industry seems to have reached a point where it cannot return to normal without a strong medicine. An executive in the Hong Kong securities industry told me that the recent news about thousands of stocks having zero transactions has existed for a long time, but it has only recently been exposed. The entire Hong Kong stock market has reached a rather bleak state.

And cryptocurrency seems to have become a strong medicine in the eyes of the Hong Kong government.

Since the Hong Kong government publicly supported cryptocurrency on October 31 last year, the financial industry in Hong Kong, including brokerages, banks, insurance companies, and auditing firms, has been stimulated by this strong medicine and has begun to operate.

For example, since Hong Kong supported the cryptocurrency industry, DBS Bank, Standard Chartered Bank, and Zhong An Bank have actively participated in cooperation to provide cryptocurrency-to-fiat exchange services for users of cryptocurrency exchanges. Currently, there are two licensed cryptocurrency exchanges in Hong Kong: HashKey and OSL. HashKey collaborates with banks like Zhong An, while OSL partners with banks like DBS and Standard Chartered.

For auditing firms in Hong Kong, they will also gain a new batch of clients. Almost all large auditing firms in Hong Kong are now involved in cryptocurrency business. For example, HashKey has partnered with three auditing firms, with KPMG as the external auditor, PwC for internal auditing, and EY for code auditing. Foresight News has learned exclusively that OKX HK's auditing firm has chosen another one of the Big Four: Deloitte.

In addition, insurance companies, asset management firms, and investment institutions have also been activated by this strong medicine of cryptocurrency. For instance, in September this year, China Pacific Insurance Group's China Taiping Investment Management (Hong Kong) Co., Ltd. was approved to upgrade to the first and fourth categories of licenses from the Hong Kong Securities and Futures Commission, engaging in virtual asset fund distribution and advisory services. From now on, Taiping Asset Management Hong Kong can provide distribution and investment advisory services for funds with more than 10% investment in virtual assets.

Hong Kong insurance companies Aon and OneDegree have also gained recognition in the industry for being among the first to provide insurance services for hot and cold wallets for cryptocurrency exchanges.

The financial industry in Hong Kong is beginning to undergo new changes.

From the existing experience of global capital markets (especially the US capital market), the market potential of cryptocurrency will also provide new opportunities for practitioners or technical talents in Hong Kong's financial industry, even leading to higher channels. Especially for those who have expertise in both cryptocurrency and traditional finance, or those who understand both coding and cryptocurrency, they have gained more opportunities for job selection and salary increases.

According to several informed sources, Hong Kong's cryptocurrency exchanges are competing for RO with cryptocurrency experience, generally offering salaries exceeding 2 million Hong Kong dollars. Some institutions have even offered nearly 10 million Hong Kong dollars in annual salaries to compete for executives who understand technology, management, and cryptocurrency. The talent in Hong Kong's financial and technology industries has become more market-oriented and fluid.

The emergence of an industry has far-reaching effects; it is expected to influence various aspects of Hong Kong's financial industry, technology innovation industry, education industry, and exhibition tourism industry.

This year, I have visited Hong Kong multiple times and found that cryptocurrency courses have become quite common in Hong Kong's universities, particularly evident in economics and finance majors within business schools. And what has been stirred is not just the cryptocurrency and financial industries.

Final Thoughts

Hong Kong's entry into the cryptocurrency industry is neither the first nor the last in the world.

Based on my somewhat subjective observation, in recent years, innovations in global capital markets are often led by the US and then transmitted to Singapore and Hong Kong within 1-3 years. Whether it is the SPAC listing model that exploded in the US in 2020 (with the first SPAC listing company arriving at the Hong Kong Stock Exchange in 2022), or the trend of US brokerages offering cryptocurrencies to users after 2020, it is all the same.

Many aspects of the integration trend between Hong Kong's securities industry and cryptocurrency industry are partially reminiscent of the US cryptocurrency market two years ago, and many experiences that US cryptocurrency companies have gone through can be replicated in other regions. While many patterns validated by the US cryptocurrency financial industry may not be completely copied, they still hold reference significance. Understanding the "regulatory and market development history of cryptocurrencies in the US" may help better grasp and judge the future direction of Hong Kong's cryptocurrency industry over the next two years.

Taking the largest internet brokerage in the US, Robinhood, as an example, shortly after entering the cryptocurrency business, it launched features like cryptocurrency wallets and transfers, and even supported NFT purchases. Its newly constructed non-custodial web3 wallet allows customers to have complete control over their cryptocurrencies and seamlessly access decentralized networks and all the opportunities that cryptocurrencies must offer.

According to Reuters, in Q4 2020, Robinhood had only 1.7 million cryptocurrency users, but by Q1 2021, over 9.5 million users were trading cryptocurrencies on its platform, showing astonishing user growth. This was followed by improved revenue, as cryptocurrency has significantly helped brokerages increase their revenue sources and profitability. In recent years, revenue from cryptocurrency trading has consistently ranked among the top three sources of trading income for Robinhood, even long exceeding stock trading income. For example, in Q2 2023, revenue from cryptocurrency trading was $31 million, while revenue from stock trading was $25 million, and revenue from options trading was $127 million.

Will the leading brokerages in Hong Kong also replicate Robinhood's success?

This may also be why Hong Kong brokerages are rushing in and expanding their cryptocurrency businesses; inaction is also a form of action, and it may even carry greater risks.