Hong Kong-based BC Technology Group Ltd. is considering the sale of its cryptocurrency platform, OSL, one of only two exchanges licensed under the city's digital-asset regulations introduced in June.

Potential Buyers: OSL Eyed by BC Technology

Anonymous sources familiar with the matter have indicated that BC Technology has reached out to potential buyers, including industry players and funds. The discussions have set a tentative valuation of HK$1 billion ($128 million) for OSL. Following this news, BC Technology's shares saw a significant decline of up to 16.7% during early trading on Tuesday, marking the most substantial drop since June 12, as reported by Bloomberg News.

OSL's platform offers a range of services, including prime brokerage, exchange, and custody for the cryptocurrency markets. It also provides infrastructure to financial institutions, allowing them to facilitate virtual-asset trading. Instead of a full sale, BC Technology may opt to sell specific parts of OSL, according to insiders.

It's essential to note that these deliberations are ongoing. There is no guarantee that they will culminate in a deal. In response to inquiries from Bloomberg News, a BC Technology representative stated: "We are a highly transparent and regulated company. We do not comment on market rumors and speculations."

Modest Demand and Higher Costs in Crypto Market

Hong Kong introduced a comprehensive digital-asset regulatory framework on June 1, designed to encourage the growth of the cryptocurrency sector and permit retail investors to trade larger tokens on licensed exchanges. However, market demand for cryptocurrencies remains modest following the market's downturn and associated bankruptcies from the previous year. The city's stringent regulatory environment may also entail higher operational costs.

Moreover, Hong Kong is struggling with the repercussions of the unlicensed JPEX exchange debacle. It tainted the reputation of the digital-asset industry.

BC Technology reported a reduction in net losses, from HK$300 million in the same period last year to HK$95 million for the six months ending in June, according to its interim report.

OSL's digital assets and blockchain platform business stand out as the primary income source for BC Technology, as per the report. During the first half of 2023, digital-asset trading volume on OSL dipped by nearly 50% to HK$112.6 billion compared to the same period the previous year.

Although BC Technology's market value has increased by more than double to approximately HK$1.7 billion from its low point in August this year, the shares remain at over 80% below their peak in June 2021, which occurred during the cryptocurrency boom associated with the pandemic.

It's also worth noting that OSL has withdrawn its application for a digital-asset license in Singapore and plans to submit a revised application. As part of this transition, certain Singaporean clients are being migrated to the exchange in Hong Kong.

In Hong Kong, HashKey Exchange is the only other platform holding a digital asset license. Given the recent JPEX controversy, the licensing process may become more rigorous, as authorities allege that the exchange defrauded investors of HK$1.6 billion.