Bitcoin Surges Past $102,000: Can OKX's "Water Seller" Strategy Turn the Tide?

Bitcoin Surges Past $102,000: Can OKX's "Water Seller" Strategy Turn the Tide?On January 17, 2025, the price of Bitcoin briefly exceeded $102,000 per coin, reaching a new high since January 7th. This news has once again drawn attention to the former digital asset trading platform giant, OKX (formerly OKCoin), the entrepreneurial journey of its founder, Star Xu, and his strategic choices

Bitcoin Surges Past $102,000: Can OKX's "Water Seller" Strategy Turn the Tide?

On January 17, 2025, the price of Bitcoin briefly exceeded $102,000 per coin, reaching a new high since January 7th. This news has once again drawn attention to the former digital asset trading platform giant, OKX (formerly OKCoin), the entrepreneurial journey of its founder, Star Xu, and his strategic choices. The soaring Bitcoin price stands in stark contrast to OKX's recent financial performance. OKX's mid-year report for 2024 shows that in the six months ending September 30, 2024, the company achieved a revenue of HK$195 million, but suffered a net loss of HK$3.615 million, raising concerns about its continued losses.

However, it's noteworthy that despite the sustained rise in Bitcoin's price, OKX reduced its Bitcoin holdings by 888 coins, converting them into cash. This seemingly reflects a desperate measure taken under financial pressure.

This article will delve into OKX's rise and fall, analyze its "water seller" strategy and its complex relationship with founder Star Xu, and attempt to answer the crucial question of whether it can reverse its fortunes in the challenging cryptocurrency market.

From OKCoin to OKX: Star Xu's Entrepreneurial Journey and Strategic Transformation

In 2013, Star Xu founded the OKCoin digital asset trading platform. Leveraging his successful experience at Yahoo China and Douban, OKCoin quickly gained the attention of the capital market. Tianyancha data shows that OKCoin secured financing just three months after its launch and continued to receive capital favor in subsequent years. Star Xu himself became a representative figure for young entrepreneurs, frequently attending industry summits and holding various important positions, such as a specially appointed expert at the Zhongguancun Internet Finance Industry Association and a member of the National Internet Finance Security Technology Expert Committee.

However, on September 4, 2017, the People's Bank of China and six other departments jointly issued the "Announcement on Preventing Risks from Token Issuance Financing," tightening regulation on digital asset trading platforms. This marked a new phase in the development of digital asset trading platforms in China.

Facing the increasingly stringent regulatory environment, the OK ecosystem accelerated its overseas expansion. In 2019, Star Xu and OK's overseas companies appeared on the shareholder list of the Hong Kong-listed Advance Holdings Group, eventually completing the acquisition of controlling interest. That same year, the OK Group officially adopted the Chinese name "OK Group," later changing it to "OKX" in 2020.

Although OKX attempted to sever ties with the domestic market, its product OKLink continues to operate in China and faced complaints from domestic users in 2024, reflecting the challenges the company faces in completely disengaging from the domestic market.

Simultaneously, the global cryptocurrency market faced intensified regulation and increased risks. For example, Binance founder Changpeng Zhao was convicted for failing to establish effective anti-money laundering mechanisms, serving as a warning to the entire industry.

Against this backdrop, Star Xu gradually withdrew from the company's frontline management. He resigned from positions such as CEO of OKEx and ultimately stepped down as a non-executive director of OKX. Nevertheless, Star Xu still holds 72.71% of OKX's shares, indicating a close connection with the company.

On October 25, 2023, the former operating entity of OKCoin, Beijing Lekuda Network Technology Co., Ltd., was deregistered, marking a further "severance" of Star Xu's relationship with OKX. However, this appears to be more of a formal change than a substantial separation.

The "Water Seller" Strategy: Synergies and Potential Risks of OKLink and OKCoin

OKX's core business strategy can be summarized as a "water seller" model.

In 2016, OKX launched the digital asset trading platform OKCoin and the cross-border remittance platform OKLink. OKCoin initially focused on Bitcoin and Litecoin trading and was once a leading Bitcoin trading platform in China. Its international site operated independently from the Chinese site, supporting US dollar and contract trading, generating substantial profits through withdrawal fees and trading leverage fees.

OKLink aimed to address the inefficiencies, high fees, and lack of transparency in cross-border remittances. Leveraging the advantages of blockchain technology, OKLink improved the authenticity and reliability of transactions and gradually developed a series of products including multi-chain blockchain browsers, ChainEye, and ChainGuard. OKLink's security reports, such as the Q3 2024 OKLink Security Quarterly Report detailing massive losses caused by network-wide on-chain security incidents, have attracted considerable attention and heightened user awareness of digital asset security.

OKLink's role as a "water seller" lies in its provision of infrastructure, data services, and security support to the industry without directly participating in the development and operation of blockchain projects. Crucially, OKLink can provide Anti-Money Laundering (AML) and Know Your Customer (KYC) services to OKCoin, enhancing its compliance and security. The collaboration between OKLink and OKCoin Japan is a successful example.

The synergy between OKLink and OKCoin is undeniable. OKLink provides OKCoin users with more comprehensive market information and trading references, enhancing user trust in OKCoin and thus improving its market competitiveness.

However, this "water seller" strategy also carries potential risks. If the cryptocurrency market remains sluggish or significant regulatory changes occur, the demand for OKLink's services may decline, impacting OKX's overall profitability.

Financial Difficulties and Future Outlook: Can Asset Sales Solve the Fundamental Problems?

Despite owning two product lines, OKCoin and OKLink, OKX's commercial viability is concerning. In the first half of 2024, OKX's revenue primarily came from ground and building construction projects, while digital asset-related revenue accounted for only about 16% of total revenuea significant deviation from expectations for a blockchain technology company.

High sales costs led to continued losses for OKX. More worryingly, the company's annual and semi-annual reports do not separately list R&D costs, making it difficult for investors to assess the company's R&D investment and innovation capabilities.

OKX holds a substantial amount of digital assets, including stablecoins, Ether, and Bitcoin. In the face of rising cryptocurrency prices, the company chose to divest some assets to raise capital. However, the proceeds from these sales do not match the increase in cash and cash equivalents shown in the company's financial statements, raising further questions about its financial situation.

Meanwhile, OKX's debt ratio remains high. While it has decreased somewhat through asset sales, the total asset size has shrunk considerably, indicating that the company still faces significant financial pressure.

The 2019 dispute between Star Xu and investor Yongxing Yang further fueled market skepticism towards OKX, involving the freezing of substantial assets and accusations of "embezzlement."

While OKLink and OKCoin demonstrate synergies in business, technology, and branding, they have not yet generated sustained profitability for OKX. Asset sales can only temporarily alleviate the debt burden; the core issue is the persistent underperformance of its core business.

OKX's future development is uncertain. Whether it can turn the tide depends on its ability to find new profit models and enhance the competitiveness of its core business in the increasingly complex regulatory environment of the cryptocurrency market. This requires strategic adjustments, increased R&D investment, improved management efficiency, and proactive responses to market risks and regulatory challenges. The success of OKX's future transformation remains to be seen.