How to buy Bitcoin at a 30% discount, and why does Hong Kong want to develop Web3?

Author: Captain Cook

Two days ago, at the invitation of a friend, I attended a shareholder meeting of a Hong Kong-listed company - Boyaa Interactive (HK:00434), held at a hotel in Wanchai, Hong Kong. This is a "small" company in China that focuses on online board games.

I wasn't particularly interested at first, as I neither play games nor invest in gaming stocks. However, the meeting venue was only 2 kilometers from my home in Hong Kong, so I thought I would go to meet friends and learn something.

The meeting lasted for over an hour and truly opened a new world for me: I seem to have discovered a way to buy Bitcoin at a 30% discount; I also understood why Hong Kong is vigorously developing the Web3 industry.

Part.1 Boyaa Interactive Shareholder Meeting, Discovering Dai Zhikang, One of the "Four Young IT Stars" in Beijing

Upon entering the small meeting room located in the basement of the hotel, I noticed that there weren't many shareholders attending the meeting. There were several elderly shareholders, which seems to be a characteristic of shareholder meetings for Hong Kong-listed companies.

The names of several company executives attending the meeting were already displayed on the guest table. I was surprised to see a familiar name on the nameplate: Mr. Dai Zhikang.

It turns out he is actually the chairman of the board of Boyaa Interactive! When did he become the chairman of Boyaa Interactive?

People my age who are familiar with the internet basically know Dai Zhikang.

Back in 2006, the four post-80s internet figures who appeared on "Lu Yu Has a Date": Li Xiang, Dai Zhikang, Gao Ran, and Mao Kankan, were hailed by the public as the "Four Young IT Stars" of Beijing.

The Four Young IT Stars of Beijing in 2006

At that time, I was also starting an internet business in Shanghai "Shanghai Memories | The Cities I've Lived In", while they were the internet entrepreneurship stars of that time.

Mao Kankan founded the real-life game company Majoy; Gao Ran founded China's first video website MYSee; Li Xiang founded Popo.com, which later became Autohome, and is now the leader in the new energy vehicle sector, "Li Auto."

As for the tech geek Dai Zhikang, he founded "Discuz!" and became the leader in the community software field.

Back then, browsing BBS and posting on internet forums was one of the most popular ways to participate in the internet. Personal websites sprang up like mushrooms after rain, and most of these chat forums were built using "Discuz!" created by Dai Zhikang.

In 2010, his company, Comsenz, was acquired by Tencent for $60 million, and Dai Zhikang subsequently joined Tencent as the general manager of the e-commerce division. In 2014, Dai Zhikang quietly left Tencent and entered the investment industry.

After that, I didn't pay much attention to Dai Zhikang until the Boyaa Interactive shareholder meeting in 2024, where I found out that he is actually the chairman of the board of Boyaa Interactive.

According to my friend, he was an early angel investor in Boyaa Interactive, having invested in the company back in 2008, and Boyaa Interactive went public in 2013. Based on the market value on the day of listing, Dai Zhikang made a 1000-fold profit on this investment.

Additionally, Dai Zhikang also invested early in Huobi and made over $1 billion from it.

Dai Zhikang, Gao Ran, Li Xiang, and Mao Kankan back in the day

Part.2 Boyaa Interactive's Past in 2018/2019

After the meeting started, I listened while flipping through Boyaa Interactive's brief annual report. My previous knowledge of this company was limited to knowing that it was involved in online board games.

When I saw that the chairman of the board, Dai Zhikang, only held about 5% of the shares, I was quite puzzled. Why does the chairman have so few shares? Who is the major shareholder?

I quickly looked up some information online and found out that the founder of Boyaa Interactive is Zhang Wei, who is also a legendary figure in the internet space.

Due to some reasons in 2018, he was unable to continue holding a position in the listed company. So, in 2018, the company's angel investor Dai Zhikang became the chairman of the board of Boyaa Interactive.

In the same year, the domestic gaming industry faced tightening regulatory policies, and card games were hit hard, especially as the company's main product, "Texas Hold'em," was embroiled in a network gambling scandal.

At the end of December 2019, Boyaa Interactive announced that it was fined 943 million yuan due to the "employee involvement in a major online gaming platform gambling case."

Although they argued their case, the court conducted a retrial, but the retrial judgment still decided to "recover and remit the frozen funds of 292 million yuan and financial products worth 350 million yuan to the national treasury."

Boyaa Interactive was severely injured, and for this reason, Zhang Wei became somewhat disheartened about continuing his business in China; thus, the company shifted its focus to overseas markets, continuing to operate Texas Hold'em in over 100 countries.

In the following years, due to the pandemic, the company turned misfortune into fortune, gradually recovering and rapidly developing. By 2023, the company's net profit had exceeded 120 million Hong Kong dollars, with 95% of its revenue coming from overseas.

Part.3 Shocking Discoveries in Boyaa Interactive's Annual Report

While reviewing the annual report, I also found some information that shocked me.

This company actually holds $100 million worth of cryptocurrencies, including approximately $45 million in Bitcoin, $45 million in Ethereum, and $10 million in USDT.

What shocked me even more was that one of the most important agenda items at this shareholder meeting was to continue using the company's own $100 million to purchase cryptocurrencies!

I checked the company's current market value, which is 1.391 billion Hong Kong dollars, equivalent to only $178 million; the company is currently in a state of net asset deficit, with a price-to-book ratio of only 0.79, indicating net assets of about $225 million.

This means that this company with a market value of $178 million will own $200 million in cryptocurrencies. This is essentially an All In on cryptocurrencies.

Part.4 Why All In on Cryptocurrencies?

At the shareholder meeting, chairman Dai Zhikang elaborated on the reasons for continuing to purchase cryptocurrencies.

The gist is: the company is responding to the Hong Kong government's strong push for the development of the Web3 industry. The board believes that a comprehensive transformation into a Web3 strategy, to build a pure and leading Web3 listed company, is an important decision for the company's current and future development.

Currently, Web3 technology is still in a very early stage of development, filled with opportunities and space for growth, and Web3 gaming companies are extremely rare.

The company's management hopes to seize this business opportunity and lead the company in actively laying out in the Web3 field.

The company will continue to operate its existing 67 traditional online and mobile game products and will gradually upgrade these products to add Web3 features as legal and technical conditions permit, gradually transforming into Web3 gaming products.

Increasing reserves of cryptocurrencies and investing in and laying out business in the Web3 field will ultimately make the company the first stock in the cryptocurrency and Web3 sectors in the Hong Kong stock market.

BTC price trend over the last five years

Part.5 The Relationship Between Cryptocurrencies and Web3

And what is the relationship between cryptocurrencies, Web3, and Web3 games? This has always puzzled me. Because I neither play games nor invest in cryptocurrencies. I also couldn't understand why Hong Kong is vigorously developing Web3. What advantages does Hong Kong have in developing Web3? What are the actual products that implement Web3? What value can Web3 bring to this world and society?

It turns out that the second-largest cryptocurrency, ETH (Ethereum), is widely used as a payment fee in Web3 game asset transactions, and the Ethereum-based crypto network is now recognized as a Web3 gaming platform.

Without ETH, the company would be unable to develop Web3-related gaming products.

Additionally, Web3 is a network form based on blockchain, while cryptocurrencies are circulating tokens built on blockchain technology. To operate and provide services on the blockchain, digital tokens must be used as applications and mediums.

The types of cryptocurrencies purchased by Boyaa Interactive align with the company's business development strategy and asset allocation strategy. Whether it is Bitcoin or Ethereum, both are cryptocurrencies with good market liquidity, large market capitalization, broad market recognition, and relatively long-term holding value.

The company's All In on cryptocurrencies is essentially an All In on the Web3 that the Hong Kong government is vigorously promoting, striving to become the first Web3 stock in the Hong Kong stock market.

The company ultimately aims to benchmark against MicroStrategy (MSTR), the leading cryptocurrency stock in the US. This company's stock price has increased more than tenfold in the past year, with a peak market value close to $40 billion.

Part.6 Why is Hong Kong Vigorously Developing Web3?

Returning to the question of why Hong Kong is vigorously developing Web3.

What I can think of is that this policy's openness and promotion must be closely related to the strong support of the central government.

The decentralized model of cryptocurrencies, although not issued by any national government and lacking any value anchor to assess its value, has evidently gained some form of global universal recognition, and its value is increasingly being reinforced.

The United States has issued a Bitcoin ETF, and Hong Kong is also preparing to issue a Bitcoin ETF. The US government has transitioned from not recognizing the development of Bitcoin to now incorporating it into its trading system through ETFs.

Our country cannot allow it to develop freely domestically, as it would lead to a series of unmonitored issues and capital outflows, undermining the domestic financial system; nor can we completely disengage from this emerging virtual phenomenon.

Even if the domestic crackdown on cryptocurrencies is strong, it cannot stop the enthusiasm of those keen on participating in this new phenomenon. If participation is not possible domestically, many will still find ways to participate abroad.

Rather than that, the central government might as well place this cryptocurrency-related policy in Hong Kong.

When I thought of this, I suddenly had an epiphany: the development of Web3 in Hong Kong is indeed akin to the development of the gambling industry in Macau!

This is actually the central government's love for the special administrative regions, also allowing "meat to stay in the pot."

Part.7 Buying Bitcoin at a 30% Discount + N Times Long

1. Buying Coins at a 30% Discount

How to understand buying Bitcoin at a 30% discount? It actually means indirectly holding Bitcoin by purchasing Boyaa Interactive stocks.

Because the proposal to continue purchasing $100 million worth of cryptocurrencies was already approved at the shareholder meeting, the company will continue to purchase cryptocurrencies in batches over the coming period.

As of the market close on April 19, 2024, Boyaa Interactive's market value is $178 million, with net assets of $225 million (the company's main net assets are mostly overseas currencies or cryptocurrencies, with no liabilities).

Additionally, the $100 million worth of cryptocurrencies purchased by the company in previous months has already shown a paper profit of $40 million, but this has not yet been included in the financial statements' net assets.

Simple calculation: Market Value/Net Assets = Price-to-Book Ratio, 1.78/(2.25+0.4)=0.67. Buying Boyaa Interactive stocks at the current price is equivalent to buying the two most liquid cryptocurrencies, Bitcoin and Ethereum, at a 30% discount.

2. N Times Long

There is no doubt that Boyaa Interactive's stock price will be strongly positively correlated with Bitcoin's price; however, the increase in proportion may far exceed Bitcoin's rise.

Taking MicroStrategy (MSTR), the leading cryptocurrency stock in the US, as an example, Bitcoin's price has increased about fourfold from its low point at the beginning of 2023 to its peak this year; however, MSTR's stock price has risen from a low of $132 to a recent price of $1999, an increase of a whopping 15 times.

For most people, the complexity of purchasing Bitcoin is far greater than buying a listed stock; moreover, there are often news reports of Bitcoin wallets being hacked or Bitcoin being stolen, which deters many from investing in Bitcoin.

Therefore, when many people are optimistic about Bitcoin, they will choose to buy pure Bitcoin concept stocks instead; as Bitcoin's price continues to rise and investor sentiment remains positive, the stocks will be overbought, creating an "N times long" effect.

3. Potential Premium from Future Inclusion in Stock Connect

For most people in China, wanting to participate in cryptocurrencies is currently in a state of being completely banned; any transactions that may involve cryptocurrencies could lead to account freezes, and Bitcoin could even be confiscated.

Thus, to conveniently, safely, and legally allocate cryptocurrency assets, buying Boyaa Interactive stocks may become a viable option.

Additionally, Boyaa Interactive is not currently included in the Stock Connect, so A-share accounts cannot directly purchase Boyaa Interactive stocks and can only buy them through Hong Kong stock accounts.

This may also give rise to potential "valuation enhancement," as a stock included in the Stock Connect has a liquidity premium compared to one that is not.

Thus, buying Boyaa Interactive stocks instead of cryptocurrencies has several compounded effects: buying at a 30% discount + potential N times long + liquidity premium after future inclusion in Stock Connect.

Based on these factors, Boyaa Interactive's stock price has seen astonishing fluctuations in the past two months, rising from a low of 0.52 yuan to a high of 2.88 yuan, an increase of over five times.

Part.8 Can I Buy Now? Another Perspective

However, recently Bitcoin has pulled back 20% from its peak, and Boyaa Interactive's stock price has already pulled back 30%. Can I buy now? I cannot provide any advice. The short-term rise certainly carries risks. Where it will pull back to and how long it will take, no one knows.

Today, I consulted a big brother who does investments about his views on Boyaa Interactive and Bitcoin's current market situation. He offered me another perspective.

He said that Bitcoin's price has increased by more than four times in the past year, and it has only pulled back about 10%-15% so far.

It is definitely not the early stage of a Bitcoin bull market anymore; it has been bullish for a while. As for whether it is in the mid or late stage of the bull market? He said he couldn't judge, and it could continue to rise, potentially reaching $100,000 or even $200,000.

However, he definitely wouldn't buy Bitcoin now. In this round of the cryptocurrency bull market, regardless of how high Bitcoin's price may eventually rise, he believes that only after Bitcoin's price has dropped 70% from its peak would it be a good buying opportunity for him. This may require a long wait.

If Bitcoin can reach $200,000 in this bull market, then a 70% drop would bring it back to around $60,000.

But buying at $60,000 after a 70% drop would be much safer than buying at $60,000 now.

This big brother also shared an opportunity in US stocks: Tesla. He believes that Tesla's current stock price has dropped from a high of $414.5 at the end of 2021 to $147, which is very close to a 70% drop, nearing his buying zone.

He also shared another stock he would wait for: Nvidia, which peaked at $974; a 70% drop to below $300 is his buying zone. This will also require a relatively long wait.

After hearing this, I felt it made a lot of sense. Investing indeed requires long-term patience and waiting.

Van Gogh's masterpiece "The Farmer Waiting"