More than 60 securities firms, who understands cryptocurrency the best?

By: Zhou Zhou, Foresight News

"In the Victory Securities app, investors can now directly purchase cryptocurrencies."

In the headquarters office located in Hong Kong's Sheung Wan, the founder of VDX told me. VDX is an affiliate of Victory Securities (a well-established Hong Kong securities company) 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, and on the other side of the sea is the bustling city area of Kowloon and Victoria Harbour.

Since the beginning of this year, with Hong Kong's support for the cryptocurrency market, more and more Hong Kong securities firms have been expanding into the cryptocurrency business, including Futu Securities, Tiger Brokers, Victory Securities, Interactive Brokers, South China Securities, Changjiang Securities, Fuqiang Securities, and Huafu Jianye Securities, among others. These securities firms are becoming the first batch of institutions to provide cryptocurrency services to users.

They are rushing into the cryptocurrency industry, hoping to bring the 4 million Hong Kong stock investors into the world of cryptocurrency. Some predict that in the near future, they will all be able to directly purchase cryptocurrencies on commonly used stock trading apps. The trend is taking shape, and there are already Hong Kong stock platforms opening up cryptocurrency purchases to users.

This has brought 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 introduced to licensed and compliant cryptocurrency exchanges in Hong Kong such as HashKey and OSL through their familiar stock platforms. Millions, even tens of millions, of Hong Kong stock users will have the opportunity to come into contact with cryptocurrencies such as Bitcoin and Ethereum through their stock platforms.

"This may bring tens of millions of users trading Hong Kong stocks on these platforms into the cryptocurrency market," said Vincent Wong, Chief Operating Officer of HashKey Group, a licensed virtual asset exchange in Hong Kong. Recently, HashKey has been in negotiations with approximately 5 local Hong Kong securities firms to establish entry points related to HashKey's cryptocurrency trading services. Another licensed cryptocurrency exchange, OSL, has also reached agreements with nearly 5 securities firms. In addition, there are also some institutions in the Hong Kong securities industry that are directly investing in or establishing independent cryptocurrency companies.

What they are eyeing is not only the 4 million active Hong Kong stock investors and the less than 10 million Hong Kong citizens, but behind them, the vast market of over 4 billion people in Asia may be their true target.

Crossing the sea, each shows their unique skills

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

Futu was once China's largest internet securities firm, 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 worldwide, and Futu Securities is the largest retail securities firm 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 currently applying for a license from the SFC (Securities and Futures Commission) in Hong Kong." Futu told Foresight News: "As the leading retail securities firm in the Hong Kong region, we will continue to keep an eye on industry developments."

According to reports, Futu's cryptocurrency exchange in Hong Kong is called PantherTrade, which was registered in March of this year. Chen Zhihu, an executive with cryptocurrency experience, was appointed as a director in September of this year. Futu's emphasis on cryptocurrency business is not new in the industry.

During a visit to Singapore, I conducted random interviews with local Singaporeans and found that some of them use Futu's moomoo to trade cryptocurrencies, and moomoo has become one of the largest cryptocurrency trading platforms in Singapore.

Tiger Brokers is also not willing to fall behind. Tiger Brokers and Futu, as the two largest internet securities firms in China, have been in a competitive race overseas, and they are also actively expanding their cryptocurrency business.

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

It is said 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 product at the beginning of 2023.

Securities firms entering the Hong Kong cryptocurrency market have different backgrounds and identities. In addition to "Chinese internet securities firms" such as Futu and Tiger Brokers that have left mainland China to develop overseas, there are also Hong Kong securities firms with American backgrounds, such as Interactive Brokers, and Hong Kong securities firms with local backgrounds, such as Victory Securities and Fuqiang Securities, as well as more low-profile Hong Kong securities firms with Chinese backgrounds.

Interactive Brokers, a representative of American securities firms entering the cryptocurrency industry, is providing cryptocurrency services to users with support from the virtual asset trading platform OSL. The commission is 0.20% - 0.30% of the transaction value, depending on the monthly trading volume, with a minimum of $2.25 per order. It is worth mentioning that users can trade and view balances of virtual assets on Interactive Brokers' single platform. Thus, a Hong Kong stock investor can trade Bitcoin, Ethereum, as well as stocks, options, futures, bonds, mutual funds, and ETFs, all on a single stock platform.

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

Unlike Interactive Brokers with an American background, Victory Securities is a Hong Kong-based securities firm listed on the Hong Kong stock market, providing comprehensive financial services and being relatively active in the cryptocurrency market. Its slogan is "Buying stocks and coins is equally simple."

Victory Securities' affiliated company for cryptocurrency is VDX (Victory Fintech Company Limited). The founder of VDX told me: "Currently, Victory Securities' app already supports users to purchase stocks and cryptocurrencies on a single platform." He also mentioned that compared to other cryptocurrency exchanges targeting retail customers, VDX is only focused on B2B users.

Stirring up the Hong Kong financial industry with a "strong medicine"

It seems that the Hong Kong financial industry has been given a "strong medicine" and cannot return to normal. A senior executive in the Hong Kong securities industry told me that the recent news of thousands of stocks with zero trading volume has been around for a long time, but it has only recently been exposed. Currently, the entire Hong Kong stock market has reached a rather bleak state.

Cryptocurrency seems to have become the "strong medicine" in the eyes of the Hong Kong government.

Since the Hong Kong government publicly supported cryptocurrency on October 31 of last year, not only the securities industry, but also banks, insurance companies, audit firms, and other sectors of the Hong Kong financial industry have been stimulated and have begun to operate.

Taking banks as an example, since Hong Kong's support for the cryptocurrency industry, banks such as DBS Bank, Standard Chartered Bank, and Zhongan Bank have actively participated in cooperation to provide cryptocurrency-to-fiat currency exchange services for users of cryptocurrency exchanges. Currently, there are two licensed cryptocurrency exchanges in Hong Kong: HashKey and OSL. HashKey has cooperated with Zhongan Bank, while OSL has cooperated with DBS Bank, Standard Chartered Bank, and other banks.

For Hong Kong audit firms, they will gain a new batch of clients. Currently, almost all major audit firms in Hong Kong have been involved in the cryptocurrency business. Taking HashKey as an example, it has already partnered with three audit firms: KPMG for external audit, PwC for internal audit, and Ernst & Young for code audit. Foresight News exclusively learned that OKX HK's audit firm has chosen another one of the Big Four audit firms: Deloitte.

In addition, insurance companies, asset management, investment institutions, and others have also been activated by the "strong medicine" of cryptocurrency. For example, in September of this year, China Pacific Insurance Group's subsidiary, China Pacific Insurance Management (Hong Kong) Limited, was approved to upgrade its Type 1 and Type 4 licenses from the Hong Kong Securities and Futures Commission to engage in virtual asset fund distribution and advisory services. Starting immediately, CPIC Asset Management Hong Kong can provide distribution and investment advisory services to funds with a virtual asset investment proportion exceeding 10%.

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

The financial industry in Hong Kong has begun to undergo new changes.

From the experience of global capital markets (especially the US capital market) in recent years, the market potential of cryptocurrencies will provide new opportunities for financial industry practitioners or technical talents in Hong Kong, and even open up new channels. Especially for those with expertise in both cryptocurrency and traditional finance, or those who understand both coding and cryptocurrency, they have gained more opportunities for career choices and salary increases.

According to several informed sources, cryptocurrency exchanges in Hong Kong are competing for experienced ROs (Responsible Officers), with salaries offered generally exceeding HK$2 million. Some institutions have even offered nearly HK$10 million in annual salary to compete for executives who understand both technology, management, and cryptocurrency. Talent in the financial and technology industries in Hong Kong has become more market-oriented and fluid.

The birth of an industry has far-reaching implications, and it is expected to affect various aspects of the current financial industry, technological innovation industry, education industry, and exhibition and tourism industry.

Throughout this year, the author has visited Hong Kong several times and found that cryptocurrency courses have become more common in Hong Kong's universities, especially in the economics and finance departments of business schools. The impact is not limited to just the cryptocurrency and financial industries.

In conclusion

Hong Kong's foray into the cryptocurrency industry is not the first in the world, nor will it be the last.

Based on the author's subjective observations, in recent years, innovations in global capital markets have often been led by the United States and then transmitted to Singapore and Hong Kong within 1-3 years. This is true for various developments, such as the SPAC listing model that became popular in the US in 2020 (with the first SPAC listing company on the Hong Kong Stock Exchange in 2022), as well as the provision of cryptocurrency services by US securities firms after 2020.

In many ways, the trend of integration between the securities industry and the cryptocurrency industry in Hong Kong is partially replicating the cryptocurrency financial market in the US from two years ago. Many experiences that cryptocurrency companies in the US have gone through can be replicated in other regions, and many established rules in the US cryptocurrency financial industry may not be completely copied, but they still have significance for reference. Understanding the "regulatory and market development process of cryptocurrency in the US" may better grasp and judge the future direction of the cryptocurrency industry in Hong Kong.

Taking the largest internet securities firm in the US, Robinhood, as an example, shortly after entering the cryptocurrency business, it launched features such as cryptocurrency wallets, transfers, and support for NFT purchases and transactions. Its newly built non-custodial web3 wallet allows customers to have full control over their cryptocurrencies and seamless access to decentralized networks and all opportunities provided by cryptocurrencies.

According to Reuters, in Q4 of 2020, Robinhood had only 1.7 million cryptocurrency users, but by Q1 of 2021, there were over 9.5 million users trading cryptocurrencies on its platform, showing a remarkable growth in user base. This has also led to an improvement in revenue, and cryptocurrency trading has significantly contributed to Robinhood's revenue sources in recent years, consistently ranking among the top three sources of trading revenue, and even surpassing stock trading revenue in the long term. For example, in Q2 of 2023, cryptocurrency trading contributed $31 million in revenue, while stock trading contributed $25 million, and options trading contributed $127 million.

Will the top performers among Hong Kong securities firms also replicate the success of Robinhood?

This may be one of the reasons why Hong Kong securities firms are rushing into and expanding into the cryptocurrency business. Not taking action is also a form of action, and may even entail greater risks.

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