Running into Web3, Hong Kong brokerages are "anxious"

Author: Wu Tianyi, DeThings

On August 1, according to Ming Pao, Futu Hong Kong officially launched virtual currency trading services regulated by the Hong Kong Securities and Futures Commission today, including four spot trading pairs of BTC, ETH, and USD, HKD, allowing direct purchase of virtual currencies using HKD and USD at real-time exchange rates.

According to information on the official website, Futu currently holds Hong Kong licenses 1 and 7, while established brokers like Aide, Victory, and Tiger have license 1. Starting from June 1, 2023, engaging in virtual asset trading services in Hong Kong also requires obtaining a "VASP license" issued by the Securities and Futures Commission. According to the Hong Kong Securities and Futures Commission's official website, these brokers' VASP licenses are still under application, and Futu, Tiger, and others are currently in a "deemed licensed" status.

DeThings reporters observed that these brokers mainly expand their business by collaborating with compliant exchanges. Previously, at the first HashKey New Vision Forum in June, HashKey Exchange CEO Livio Weng revealed that they have already cooperated with Futu on virtual asset trading, integrating technical systems, and once Futu's license 1 upgrade is approved, they can provide BTC and ETH trading services to customers.

Now, in addition to being the largest licensed exchange in Hong Kong, HashKey Exchange has also become the largest Omnibus service provider in Hong Kong.

With the largest trading volume and best liquidity in the licensed market in Hong Kong, almost all mainstream Hong Kong brokers provide trading services to customers by connecting to HashKey Exchange. According to HashKey Exchange's announcement, the weekly trading volume of the Omnibus brokerage business has exceeded HKD 100 million. For a newly started business, this is already a remarkable performance.

When brokers enter the crypto trading space, their business scope will differ from traditional brokers. According to the definitions of brokers in Hong Kong's Securities and Futures Ordinance and the Securities Law of the People's Republic of China, they are legal entities providing investors with securities trading services, authorized to accept customer commissions and execute orders for securities trading for a fee, while proprietary trading is conducted in the broker's own name. Brokers are not allowed to accept deposits, handle loans, or lend securities. Therefore, before the VASP license is approved, these brokers may need to provide virtual asset services in a collaborative manner.

Futu Securities is the largest technology broker in Hong Kong, with registered users accounting for about one-third of Hong Kong's adult population. User assets amount to HKD 485.6 billion, and the total trading volume in 2023 reached HKD 4.2566 trillion. In addition, there are other Hong Kong brokers with similar backgrounds to Futu, such as Tiger and Interactive Brokers, as well as Hong Kong brokers with local capital backgrounds like Victory Securities and Fuqiang Securities, and more low-profile brokers with Chinese capital backgrounds.

Futu's entry means that all leading brokers in Hong Kong have entered the Web3 space.

In May, Victory Securities stated that it is currently applying for a Hong Kong virtual asset exchange license, and its security token offering (STO) business is expected to launch by the end of the year. In June, Tiger Securities (Hong Kong) announced that it has officially launched virtual asset trading services for retail investors in Hong Kong. In July, Hong Kong Aide Financial announced that it will soon launch Bitcoin and Ethereum trading functions through its smart trading application Eddid ONE.

The pace of these brokers seems somewhat urgent, possibly due to various reasons. First, since the approval of the Bitcoin ETF in January this year and the completion of the fourth Bitcoin halving in April, Bitcoin once reached USD 74,000. In the past few months, Bitcoin's price has fluctuated repeatedly, and there are often discussions in the market about whether this bull market has already peaked or is halfway through. Perhaps not wanting to miss out on this bull market, brokers are actively promoting virtual asset trading services.

Secondly, the continuous weakness of the Hong Kong stock market may also create some pressure. Data shows that the Hang Seng Index has fallen from over 30,000 points to a low of 14,863 points over three years, currently recovering only to 17,000 points. Previously, the trading volume of Hong Kong stocks on multiple trading days was less than HKD 100 billion, with a thousand Hong Kong stocks trading below HKD 10,000, and over 700 Hong Kong stocks having zero transactions. Additionally, 19 companies delisted from the Hong Kong stock market in the first half of this year, with 8 companies going private, involving an amount of USD 3.8 billion.

In the context of the "cold wave" in the Hong Kong stock market and frequent delistings of listed companies, brokers choosing cryptocurrency as a new investment option may serve as a shot in the arm for Hong Kong's finance. The entry represents a significant opportunity for a large number of Web2 users to connect with virtual assets.

According to the latest survey by the Hong Kong Investor and Financial Education Council, 96% of retail investors have invested in stocks in the past year, 24% have invested in funds, and 18% have invested in bonds. Among them, 8% have invested in virtual assets and related products, showing a significant upward trend compared to 1% in 2019 and 6% in 2021.

Hong Kong currently has about 4 million stock investors. Futu Securities stated that according to its industry survey, over 40% of investors who have never traded virtual assets expressed a desire to trade on Futu NiuNiu, while nearly 75.6% of experienced investors also support Futu's platform launching virtual asset trading services.

Last August, HashKey Group COO Weng Xiaoqi also stated that they are collaborating with about five local Hong Kong brokers to establish access related to HashKey's cryptocurrency trading services. Weng expressed hope to provide cryptocurrency trading services directly to investors through these broker platforms, "which could bring tens of millions of users trading Hong Kong stocks on these platforms."

Furthermore, Hong Kong has previously been criticized for its high compliance costs, leading service providers to fear losses. However, according to Wen Wei Po, Victory Securities revealed that its virtual asset-related income can maintain a level of one-fourth to one-third of the company's total income, benefiting from the early entry advantage, its virtual asset business has roughly recouped its investment and is now profitable.