Digital assets the 'hot thing' in fundraising

Editor's note: The Chinese mainland is ahead of the curve on digital currency, successfully testing it in Shenzhen. A Hong Kong-based fintech startup sees opportunities provided by the central government's favorable policies to expand its digital assets exchange business.

HKbitEX — a local startup that provides a platform for digital assets exchange — believes it's now the perfect time for Hong Kong to take the leap in financial technology, with opportunities arising from the development in the Guangdong-Hong Kong-Macao Greater Bay Area.

Virtual asset trading has been the in-thing worldwide for the past year as central banks mull issuing digital currencies. The Chinese mainland has launched the digital yuan although it's still on a trial basis, said Ken Lo, co-founder and chief strategy officer of HKbitEX.

"We hope to be the leading digital assets platform, riding on Hong Kong's mature capital market infrastructure. We believe this is the right moment for us to lead the world in fintech," he said.

Before joining HKbitEx, which started some 20 months ago, Lo was a founding member of ZA International where he was head of strategic partnerships. ZA International won licenses for virtual banking and virtual insurance in the past two years, joining eight virtual banks operating in Hong Kong.

Now with more than a decade's experience in the financial sphere covering banking, consulting and fintech, Lo graduated with a bachelor's degree from the Hong Kong University of Science and Technology and went on to obtain a master's degree in finance (investment management) from the same institution.

What are digital or virtual assets? Basically, there're two asset classes, he said. One is cryptocurrency, like bitcoin, and the other is security token offering, which refers to tokenized digital securities sold in cryptocurrency exchanges.

Cryptocurrency is created by blockchain technology, while STO is backed by real assets with underlying value, he explained.

"At the end of the day, it's about fundraising. You can raise funds by getting a loan from a bank. If you're a listed company, you can issue corporate bonds. But what are the other channels? STO is another type of channel where it would be very safe to raise funds through real liquid assets."

Another case is trade finance. Many shipping or logistic companies are assets-heavy. How do they raise funds? These companies may not be appreciated by stock market investors like technology firms, but they are cash rich, according to Lo.

"How do you use your cash flow as security to raise funds? STO is a new channel for them to do it."

HKbitEX is among the first organizations in the Asia-Pacific to apply for a "virtual asset trading platform license" from Hong Kong's Securities and Futures Commission, allowing the company to offer compliant, secure and reliable digital asset trading services to global professional and institutional investors.

Founding members of Hong Kong-based HKbitEX see Hong Kong as offering great potential for fundraising. The company's next step is to keep building up projects from a global perspective and with the Bay Area in mind.

Lo believes enterprises in the Bay Area can use Hong Kong as a springboard to link up global projects when they raise funds, and STO is one vehicle they can embrace.

Besides, the central government has rolled out a string of favorable policies for companies in the Bay Area, many of which are in the financial sector. Those with renminbi funds in the region are encouraged to invest offshore and Hong Kong should be their primary choice.

It's a very good opportunity for Hong Kong to attract new fund flow, with wealth management investment opportunities for all onshore renminbi funds, said Lo.

HKbitEX, which is part of the Cyberport incubation program, closed its Series A fund raising round in late November, having raised US$10 million so far, while its post Series A valuation is about US$50 million.

Eric Chan Sze-yuen, chief public mission officer of Cyberport, said this is a very unique time for startups in the innovation and technology despite the pandemic, and Cyberport is happy to see Hong Kong's younger generation with a strong entrepreneurial spirit still willing to take the plunge.

"We still receive plenty of applications for the incubation program. We are looking at roughly 130 of them joining our core incubation program this year," said Chan.

He said it's obvious the SAR government is determined to transform the city into a leading global hub for innovation and entrepreneurship, where startups could use Hong Kong as a big laboratory to test out their innovative solutions and as a launchpad and showcase for global expansion.

But Cyberport has been telling startup incubatees that Hong Kong is still a very small market that's not enough for those aspiring to become "unicorns" — privately-held startup companies valued at more than US$1 billion. They need a bigger market.

"So, using Hong Kong as a launchpad and prove that their business model works here is the first step. They then have to find other markets, for example, in the Bay Area or neighboring countries, or even Europe and the United States," advised Chan.

"But, I think the government is really putting in a lot of effort to make sure that Hong Kong is a very favorable place for those coming here to get things started."