Crypto Exchange HashKey’s Shares Fall 5% on Trading Debut in Hong Kong

As investor caution remains the dominant sentiment, Hong Kong’s licensed crypto exchange HashKey makes a dim start as shares fall 5% on their trading debut. The caution arises primarily from the business model of the exchange that offers lower fees on the trading activity.

It came as a surprise that, despite being hailed as one of the most trusted exchanges in Hong Kong due to its regulatory compliance, HashKey made a less-than-average start. The stock opened on 17th December at a price below the IPO (Initial Public Offering) and went down to HK$6.34 by mid-morning.

It is presumed that the decline is courtesy of the release of the prospectus disclosure, which came out in early December. According to this document, the company plans on providing ultra-low fees to its customers to attract a large user base. This initial loss-making strategy was not seen as a feasible model by most investors, according to industry experts.

Factors Behind the 5% Decline

Another factor that could have contributed to this dim start could be that the IPO came out during a time when the entire crypto market is down. With Bitcoin and other major league crypto assets down these past few weeks, the crypto-linked stocks have also carried the brunt of the fall.

It has become evident that the business model represented within the prospectus has hurt investor sentiment. Even though HashKey has dominion over three-quarters of Hong Kong’s licensed crypto trading market, its business model is raising concerns among investors.

Even with this massive user base under its wing, HashKey hasn’t been able to make significant profits. This is due to their ultra-low fee structure, which is aimed at increasing the user base and producing long-term growth through cash flows.

Investors, on the other hand, are not so sure whether the cash flow mechanism can sustain such a huge venture that is running on prolonged losses. The early loss of 5% is indicative of this weakening confidence. Investors are waiting for a clearer picture at the moment. Unless the fee structure is revised or visible gains come from the cash flow mechanism, the strategy may hurt investor sentiment, as was seen on the opening day. Since the second scenario may take a while, prices may continue to stagnate for the time being.

CEO Xiao Feng’s Vision and Confidence

However, Xiao Feng, HashKey’s chairman and chief executive, gives an optimistic vibe as he remains fairly confident in the long-term growth potential of cryptocurrencies and associated trade activity.

Feng plans to focus HashKey’s operations in Hong Kong, which provides a healthy regulatory environment that is necessary for exchanges to prosper. The company’s prospectus also notes how it will circulate the funds towards technology infrastructure, market expansion and partnerships, and operational and risk management.

Feng’s optimism stems from various factors that had to do with the IPO offering and the investor response to it. The company’s IPO had seen an increased demand in the early stages as it reached nearly 5.5 times the stocks on offer. An even brighter prospect that might be the force behind Feng could be the retail tranche for HashKey’s IPO, as this demand went as high as 394 times the available stock offering.

While some industry experts are viewing HashKey’s association with Hong Kong as a “jurisdictional limitation”, others view it as a planned strategy. Feng had earlier stated that while adhering to one country, he plans to take advantage of two systems. This could be a vague reference to the Chinese market, despite the Chinese authorities’ crackdown on crypto growing stronger by the day.