Once built around crypto trading, the company is accelerating its push into the stablecoin and asset management businesses as it chases a place in the next wave of digital finance

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Key Takeaways:

• Bitfire lost up to HK$245 million in the six months through March, nearly 19 times more than its loss a year earlier
• The company is accelerating its expansion into the stablecoin and asset management businesses

Excitement is building in Hong Kong's virtual asset realm as the city kicks off its use of stablecoins, marking a first step in its growing embrace of virtual currencies. But into that atmosphere of excitement, Bitfire Group Holdings Ltd. (1611.HK) distracted investors from its own aspirations in the space with a worrisome profit warning. The company offers virtual asset trading, asset custody and fintech services, positioning itself across regulated digital asset markets in Hong Kong and Japan.

According to the profit warning, issued last week, Bitfire said it expects to record a net loss of up to HK$245 million ($31.28 million) for the six months through March, the first half of its fiscal year. That represents a nearly 19-fold increase from a loss of about HK$12.3 million the company reported a year earlier.

Bitfire blamed the ballooning red ink on a value loss of approximately HK$152 million on its held crypto assets, reflecting weak market conditions. A more noteworthy factor, however, may be rising expenses, with the company's spending on development and customer services up about HK$69.6 million, while R&D expenses rose by roughly HK$13.2 million.

The company said the rising expenses owed mainly to its heavier spending on professional and customer service capabilities, while R&D spending was tied to the development of technology infrastructure products and services. The spending blitz suggests Bitfire is moving beyond simply operating a traditional crypto trading platform toward becoming a fintech platform focused more heavily on technology, compliance and blockchain-related services.

Many trading platforms were able to generate strong profits during the crypto bull market of 2021 simply by taking advantage of big price swings, leverage and heavy retail trading. At the time, Bitfire rapidly expanded its Web3 operations across Hong Kong and Japan, as well as in markets tied to crypto assets, nonfungible tokens (NFTs) and on-chain investments. But as regulators in the U.S., Hong Kong, Japan and Singapore gradually tightened their oversight, the industry began shifting toward greater standardization and a broader range of institutional services. Platforms are now competing not only on trading systems, but also on anti-money laundering capabilities, asset custody and cross-border payment services, and on regulatory compliance as well.

Compliance takes center stage

This April, the Hong Kong Monetary Authority officially awarded its first batch of stablecoin issuer licenses, with approval granted only to local banking giants HSBC and Standard Chartered Bank. Both of those already hold note-issuing bank status in Hong Kong, which allows them to issue Hong Kong dollar notes, unlike most countries where the issue of paper currency is handled by the government.

The extremely low number of new stablecoin licenses — with only two approvals out of 36 applicants — suggests Hong Kong is trying to reposition stablecoins from tools traditionally associated with speculation and crypto trading into part of the next generation of its financial infrastructure.

The global stablecoin market has now surpassed $300 billion, with the two dominant U.S. dollar-backed stablecoins, USDT and USDC, continuing to lead the sector. Such coins take their name from the fact that they are backed by real-world assets, such as U.S. dollars, making them more stable than other virtual currencies with no such backing. Transaction volumes for stablecoins have already exceeded some traditional payment networks, while Hong Kong's stablecoin ambitions are aimed more at cross-border payments, digital assets and settlement applications.

Whether Hong Kong dollar-backed stablecoins can eventually be integrated into the local financial system will be a critical issue. Against this backdrop, Bitfire's increased investment over the past six months appears to reflect a strategic calculation centered on building up its compliance and technology capabilities for the coming stablecoin era.

Bitfire CEO Weng Xiaoqi recently said publicly that stablecoin-related demand is rising rapidly. The company plans to establish its own stablecoin trading and asset management businesses within the next six months, while also exploring opportunities linked to clearing licenses and the broader stablecoin ecosystem. It is attempting to position itself within Hong Kong's regulated stablecoin ecosystem by focusing on trading and financial services.

That also means Bitfire's future competition with licensed Hong Kong virtual asset traders such as HashKey (3887.HK) and OSL Group (0863.HK) will no longer be limited to traditional virtual asset trading, but will extend into emerging areas including stablecoins, real-world assets (RWA), institutional services and digital financial infrastructure.

Among those companies, OSL has been expanding into institutional custody and compliant trading services in recent years, while HashKey, backed by the Wanxiang Group ecosystem, has accelerated its expansion into retail trading, asset management and RWA-related businesses. Bitfire is smaller in scale, but is trying to simultaneously position itself across regulated digital asset markets in both Hong Kong and Japan.

Notably, Bitfire announced last month that well-known economist Fu Peng had joined the company, sending its shares up 22% in a single day on the news. Fu has long focused on global liquidity and macroeconomic research, with a background rooted more in traditional finance and capital markets rather than crypto industry circles. Investors saw his appointment as a sign that the company is accelerating its shift toward a model offering a broader array of standardized, financial services.

Bitfire's shares are up about 40% over the past year, though they were even higher and have retreated roughly 32.4% over the last six months. That highlights the continued volatility around such stocks, in line with similar volatility for cryptocurrencies and virtual assets in general. From a price-to-book (P/B) perspective, Bitfire currently trades at around 2.57 times, below HashKey's 3.99 times and OSL's approximately 3.41 times, reflecting a more cautious market view toward the company.

Compared with companies such as HashKey and OSL, which established clearer positions as licensed trading platforms in Hong Kong at an earlier stage, Bitfire remains relatively limited in both its scale and market influence.

The market's valuation framework for Web3 companies is changing. As stablecoins, RWAs and compliant payment systems increasingly become the core of this evolving industry, investors are placing greater emphasis on things like licenses, a company's institutional client book, clearing capabilities and financial partnerships. For Bitfire, the real question may not be its short-term losses, but whether it can successfully establish a position as a serious player offering trading, liquidity and institutional services in Hong Kong's emerging stablecoin and digital finance realm.

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Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.