Written by Wu Tianyi
On August 1, according to Ming Pao, Futu Hong Kong officially launched virtual currency trading services regulated by the Hong Kong Securities Regulatory Commission today, including four spot trading pairs including BTC, ETH and US dollars and Hong Kong dollars. Virtual currencies can be directly purchased using Hong Kong dollars and US dollars at real-time exchange rates.
According to the official website, Futu currently holds Hong Kong licenses 1 and 7, while established brokers such as Aide, Victory, and Tiger hold license 1. Starting from June 1, 2023, virtual asset trading services in Hong Kong will also require a "VASP license" issued by the SFC. According to the official website of the Hong Kong SFC, the VASP licenses of these brokers are still under application, and applications from Futu, Tiger, etc. are currently in the "deemed to have been licensed" status.
DeThings reporters observed that these brokerages mainly expand their business by cooperating with compliant exchanges. Earlier, at the first HashKey New Vision Forum in June, Livio Weng, CEO of Hong Kong licensed virtual asset exchange HashKey Exchange, revealed that it has cooperated with Futu on virtual asset transactions and connected technical systems. Once Futu's No. 1 license upgrade is approved, it can provide BTC and ETH trading services to customers.
Today, HashKey Exchange is not only the largest licensed exchange in Hong Kong, but also the largest Omnibus service provider in Hong Kong.
With the largest trading volume and the best liquidity in the Hong Kong licensed market, almost all mainstream Hong Kong brokers currently provide trading services to customers by connecting to HashKey Exchange. According to the announcement of HashKey Exchange, the weekly trading volume of Omnibus brokerage business has exceeded HK$100 million. For a business that has just started, this is already a very impressive performance.
When brokers enter the crypto trading market, their business scope will be different from that of traditional brokers. According to the definition of brokers in laws such as the Securities and Futures Ordinance of Hong Kong and the Securities Law of the People's Republic of China, as a legal entity that provides investors with securities trading services, it has the business of accepting clients' commissions and placing orders on behalf of clients to buy and sell securities for a fee. Proprietary trading is the business of brokers buying and selling securities in their own name. Brokers are not allowed to accept deposits, make loans, lend securities, etc. Therefore, before the VASP license is approved, these brokers may need to provide virtual asset services in the form of cooperation.
Futu Securities is the largest technology brokerage in Hong Kong, with registered users accounting for about one-third of the adult population of Hong Kong. The user assets amount to HK$485.6 billion, and the total transaction volume in 2023 will reach HK$4256.6 billion. In addition, there are Hong Kong brokerages with US backgrounds such as Tiger Securities and Interactive Brokers with similar experiences to Futu, and Hong Kong brokerages with Hong Kong backgrounds such as Victory Securities and Fortune Securities, as well as Hong Kong brokerages with more low-key Chinese backgrounds.
The entry of Futu means that all the leading brokerage firms in Hong Kong have entered Web3.
In May, Shengli Securities said that it is currently applying for a Hong Kong virtual asset exchange license. As for its security token issuance (STO) business, it will be launched at the end of the year at the earliest. In June, Tiger Brokers (Hong Kong) said that it has officially launched virtual asset trading services to retail investors in Hong Kong. In July, Eddid Finance in Hong Kong announced that it will soon launch Bitcoin and Ethereum trading functions through its smart trading application Eddid ONE.
These brokerage firms seem to be in a hurry, and there may be many reasons behind this. First, since the Bitcoin ETF was approved in January this year and the fourth Bitcoin halving was completed in April, Bitcoin once reached $74,000. In the past few months, the price of Bitcoin has fluctuated repeatedly, and the market often sees arguments that this round of bull market has passed the halfway point or has peaked. Perhaps not wanting to miss this round of bull market, brokerage firms are actively promoting virtual asset trading services.
Secondly, the continued weakness of the Hong Kong stock market may also cause some pressure. Data shows that the Hang Seng Index fell from more than 30,000 points to a low of 14,863 points in three years, and has only recovered to 17,000 points. Previously, the turnover of Hong Kong stocks in several trading days was less than HK$100 billion, the turnover of 1,000 Hong Kong stocks was less than HK$10,000, and more than 700 Hong Kong stocks had zero transactions. In addition, there were 19 listed companies delisted from the Hong Kong stock market in the first half of this year, of which 8 companies were delisted through privatization, involving an amount of US$3.8 billion.
At a time when Hong Kong stocks are experiencing a “cold wave” and listed companies are frequently delisted, brokerage firms’ choice of cryptocurrency as a new investment option may be a shot in the arm for Hong Kong’s financial sector. The entry into the market represents a large number of Web2 users gaining access to virtual assets.
According to the latest survey by the Hong Kong Investor and Financial Education Council (IFEC), 96% of retail investors have invested in stocks, 24% have invested in funds, and 18% have invested in bonds in the past year. Among them, 8% invested in virtual assets and related products, which is a clear upward trend compared to 1% in 2019 and 6% in 2021.
There are currently about 4 million stock investors in Hong Kong. Futu Securities said that according to its industry survey, more than 40% of investors who have never traded virtual assets expressed their desire to trade on Futu NiuNiu, and nearly 75.6% of experienced investors also supported the Futu platform to launch virtual asset trading services.
Last August, HashKey Group COO Weng Xiaoqi also said that he was working with about five local Hong Kong brokerages to establish an entry related to HashKey's cryptocurrency trading services. Weng Xiaoqi expressed the hope to provide cryptocurrency trading services directly to investors through these brokerage platforms, "which may bring tens of millions of users who trade Hong Kong stocks on these platforms."
In addition, Hong Kong has previously been criticized for its high compliance costs, and service providers may not be able to make ends meet. However, according to Wen Wei Po, Victory Securities revealed that its virtual asset-related income can maintain a quarter or even a third of the company's total revenue. Thanks to the advantage of entering the market early, the investment in its virtual asset business has largely paid off and is now profitable.
