Hong Kong-listed companies "go crazy" for crypto: Boyaa Interactive sees over HK$700 million in paper profits, but risks remain

Hong Kong-listed companies "go crazy" for crypto: Boyaa Interactive sees over HK$700 million in paper profits, but risks remainWhile it's not uncommon for publicly listed companies to invest in stocks, especially those with ample cash reserves, it's less common to see them heavily investing in cryptocurrencies. Following Donald Trump's election as US President, Bitcoin has surged, recently hitting a record high of over US$90,000

Hong Kong-listed companies "go crazy" for crypto: Boyaa Interactive sees over HK$700 million in paper profits, but risks remain

While it's not uncommon for publicly listed companies to invest in stocks, especially those with ample cash reserves, it's less common to see them heavily investing in cryptocurrencies. Following Donald Trump's election as US President, Bitcoin has surged, recently hitting a record high of over US$90,000. Hong Kong-listed company Boyaa Interactive (0434.HK) has also disclosed its cryptocurrency holdings, revealing that its substantial investment in Bitcoin has generated an estimated HK$679 million in paper profits. Combined with its Ethereum investments, the companys total paper gains exceed HK$720 million.

"Crypto" profits top US$100 million

Boyaa Interactive recently announced that as of November 12, it held 2,641 Bitcoin (BTC) with a total acquisition cost of approximately US$143 million, averaging around US$54,000 per Bitcoin. The company also held 15,445 Ethereum (ETH) with a total acquisition cost of approximately US$42.5781 million, averaging about US$2,756 per Ethereum. The day after the announcement, on November 13, Bitcoin reached a peak of nearly US$90,000, while Ethereum surpassed US$3,400. Based on these figures, Boyaa Interactive's Bitcoin holdings have generated estimated paper profits of around US$94 million (approximately HK$679 million), and its Ethereum holdings have generated over US$7 million in paper profits. The combined value of its two cryptocurrency holdings is estimated at approximately US$285 million, with total paper profits exceeding US$100 million (approximately HK$720 million).

Publicly available information reveals that Boyaa Interactive is a leading developer and operator of online poker games in China. The company, established in 2004, was listed on the Hong Kong Stock Exchange in November 2013. According to its official website, the company has developed numerous classic online poker games through independent research and development and multi-platform refined operations, including Boyaa Texas Hold'em, Boyaa Landlords, Boyaa Chinese Chess, and Boyaa Sichuan Mahjong.

"Alternative investments" stir market controversy

In an interview with the "China Business Journal," Yu Fenghui, an advisor and economist at the Hong Kong 100 Research Center, expressed concerns about the risks associated with a Hong Kong-listed company heavily investing in Bitcoin, including market risks, technological risks, and compliance risks. While some listed companies view digital currencies as investment tools, others question whether this strategy is simply exploiting the volatility and uncertainty of the cryptocurrency market to generate additional profits.

Performance and stock price "soar"

Since the beginning of 2024, Bitcoin has soared to record highs driven by a series of factors including the approval of Bitcoin spot ETFs, Federal Reserve interest rate cuts, and the US presidential election. This trend has been reflected in Boyaa Interactive's performance. In the first half of 2024, the company's revenue reached HK$213 million, a 9.8% increase year-on-year. Net profit attributable to shareholders reached HK$284 million, a whopping 411.7% increase year-on-year. Boyaa Interactive attributed the increase in earnings to the digital asset appreciation profits generated from its cryptocurrency holdings in the first half of the year. On November 11, the company announced that it expects its revenue for the first three quarters to increase by approximately 5% to 10% year-on-year, highlighting the positive impact of cryptocurrencies on its financial performance.

The company's stock price has also "soared" in conjunction with its performance. Boyaa Interactive, once a gaming stock, has transformed into a cryptocurrency concept stock. Wind data shows that as of the close on November 14, the company's share price has surged nearly 400% year-to-date, reaching a closing price of HK$3.03 per share with a total market capitalization of approximately HK$2.2 billion.

In fact, Boyaa Interactive has consistently displayed an aggressive approach to cryptocurrency investment. As early as August 2023, the company announced its intention to purchase Bitcoin, Ethereum, and other cryptocurrencies using US$5 million in cash. Following this initial investment, the company has repeatedly disclosed plans to increase its cryptocurrency acquisition budget. Boyaa Interactive has stated that its purchase and holding of cryptocurrencies are crucial steps in its development and deployment of Web3 business operations, as well as an essential component of its asset allocation strategy.

Volatility and regulatory risks persist

Besides Boyaa Interactive, other Hong Kong-listed companies, including Meitu, Bluefocus Interactive, and Guofu Innovation, also hold Bitcoin and other digital assets. Meitu, for example, was the first Hong Kong-listed company to invest in Bitcoin in 2021, investing hundreds of millions of Hong Kong dollars.

A private equity fund manager in Beijing told the China Business Journal that Hong Kong-listed companies heavily invest in Bitcoin for its potential investment profits and to enhance the company's market visibility and influence. "However, for companies whose primary business is not finance-related, excessive reliance on cryptocurrency investment can negatively impact their core business performance and development. Therefore, companies need to be mindful of the high volatility and regulatory risks of the market while ensuring the stability of their core business."

CoinGecko data reveals that following Trump's election as US President, Bitcoin has soared, hitting a record high of over US$90,000 on November 13, doubling in price year-on-year. Ethereum reached a peak of US$3,400 during this period. As of 12:00 PM on November 15, Beijing time, Bitcoin had retreated to US$88,000, while Ethereum traded around US$3,060.

Regarding concerns about price volatility, Yu Fenghui believes that the approval of Bitcoin spot ETFs by the US Securities and Exchange Commission (SEC) earlier this year may have stabilized Bitcoin's volatility. The introduction of ETFs will attract more institutional investors to the cryptocurrency market, who typically adopt more conservative and rational investment strategies, potentially mitigating excessive price fluctuations in Bitcoin. Furthermore, the introduction of ETFs will increase market transparency, reducing the likelihood of market manipulation and fraud.

He further points out that public mutual funds are accelerating their involvement in the crypto sector, using their Hong Kong subsidiaries to indirectly apply for the issuance of virtual asset spot ETF products. Several leading public mutual funds, including Harvest, Southern Asset Management, and China Asset Management, are launching Bitcoin spot ETFs through their Hong Kong subsidiaries, which could further promote the circulation and acceptance of Bitcoin in the Hong Kong market.

"There is no clear policy in Hong Kong supporting or prohibiting listed companies from holding Bitcoin and other digital assets," Yu Fenghui explained. However, he acknowledged that due to policy differences between mainland China and Hong Kong, the future status of Bitcoin in mainland China remains uncertain.

Conclusion:

The phenomenon of Hong Kong-listed companies investing in cryptocurrencies reflects both the enthusiasm for the cryptocurrency market and a potential over-optimistic view of market risks by some companies, neglecting their core business operations. As regulatory oversight of the cryptocurrency market strengthens and market volatility increases, it remains to be seen whether the "crypto craze" among Hong Kong-listed companies will persist.