In recent years, active trading in crypto assets like Bitcoin has drawn exchanges and brokerages seeking to capitalize on transaction fees.
Reports indicate that Futu Holdings and Tiger Brokers disclosed during last month’s earnings calls that they are applying for licenses in Singapore and the United States to allow local clients to trade digital currencies. But is this information accurate?
Tiger Brokers confirmed the news. A representative from Futu Holdings stated that this involves their overseas business operations and emphasized that any such services would be strictly for overseas clients.
What insights can Chinese securities companies gain from this as they look to expand globally?
Some industry experts believe regulatory risks make this a limited opportunity for Chinese firms expanding abroad. Others argue that, as intermediaries earning commissions through brokerage services, securities companies should be supported in conducting legitimate digital currency-related operations overseas.
Several Brokerages Are Already Applying for Licenses
According to media coverage, both Futu Holdings and Tiger Brokers announced during their May earnings calls that they are pursuing permits in Singapore and the U.S. to enable digital currency trading for their local customers.
Tiger Brokers verified this information, stating, “We are indeed applying for relevant licenses in countries like the U.S. and Singapore. We aim to offer digital currency trading to meet users’ diversified investment needs.”
The company further emphasized that digital currencies are still an emerging asset class and that they will “strictly comply with local regulatory policies and laws.” Any significant progress will be disclosed in a timely manner, and these services will be offered exclusively to overseas clients.
Earlier, Tiger Brokers CEO Tianhua Wu noted strong client interest in cryptocurrencies, mentioning that Coinbase’s stock listing attracted new users even though overall interest in IPOs had cooled compared to the previous year.
When asked about their plans for entering the cryptocurrency market and how they differentiate from exchanges like Coinbase, Futu Holdings highlighted that this initiative falls under their international business division and would only be available to non-domestic customers.
Futu’s Q1 report showed that the company added 273,000 new funded accounts, with over 70% of these from Hong Kong, Singapore, and other overseas markets.
Transaction Fees: A Lucrative Opportunity
The level of activity in trading cryptocurrencies like Bitcoin and Ethereum directly impacts transaction fee revenue—a significant income source for platforms.
On April 14, Coinbase, the largest U.S. cryptocurrency exchange, went public on Nasdaq. This event was seen as a step toward greater compliance and legitimacy for digital asset trading platforms, boosting market recognition of digital assets.
According to Coinbase’s preliminary Q1 2021 financial results, the company reported approximately $1.8 billion in total revenue, about 85.8% of which came from transaction fees. Another 3.5% was generated from subscription and service revenue, largely consisting of asset custody fees. By the end of the first quarter, Coinbase had 56 million users worldwide and $223 billion in assets on its platform, accounting for 11.3% of the crypto asset market.
Securities brokerages are taking notice of this lucrative opportunity. Several have already entered the crypto trading market.
In early 2018, U.S.-based online brokerage Robinhood launched Bitcoin and Ethereum trading. In early May, however, its trading app experienced outages due to high trading volume and volatility. Robinhood allows users to buy, sell, and hold cryptocurrencies and recently announced that users can also transfer crypto to external wallets. In the first two months of 2021, the company added an average of 3 million new crypto users per month—a significant increase from the 200,000 new digital asset users per month in 2020.
In addition, after a three-year hiatus, Goldman Sachs is reportedly restarting its cryptocurrency trading desk and plans to resume trading Bitcoin futures. Back in late 2017, Goldman Sachs was one of the first major Wall Street firms to explore offering cryptocurrency-related products, though it initially abandoned those plans due to regulatory concerns.
What This Means for Chinese Brokerage Firms
So far, aside from the two online brokerages mentioned, there have been no reports of other Chinese securities companies venturing into cryptocurrency trading. In China, regulatory authorities have cracked down on Bitcoin mining and trading, and financial as well as payment institutions are prohibited from providing services related to virtual currency transactions.
What lessons can other Chinese securities firms take from these moves as they consider global expansion?
One industry veteran pointed out that regulatory risk remains the most significant challenge, suggesting that entering the cryptocurrency market does not present a major opportunity for Chinese brokerages looking to go abroad.
Professor Pan Helin, Executive Dean of the Digital Economy Institute at Zhongnan University of Economics and Law, offered a different perspective. “Securities firms should be supported in conducting legal and reasonable business related to digital currencies overseas,” he said. “As intermediaries, brokerages focus on trading volume and earn commissions through brokerage services. They aren’t directly affected by digital currency price fluctuations. So, it’s reasonable for them to meet overseas clients’ digital asset trading needs, provided they comply with local laws.”
At the same time, Pan noted that transnational operations involve cross-jurisdictional regulatory and compliance challenges—complex hurdles that firms must navigate adeptly.
He also suggested that, against the backdrop of financial opening-up in China, securities companies should consider expanding into international markets with high trading volume and active liquidity, not limited to digital currencies. With many domestic brokerages facing homogenous competition, diversifying through global expansion is a promising strategy.
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Frequently Asked Questions
What are Tiger Brokers and Futu Holdings?
Tiger Brokers and Futu Holdings are online securities brokerages that provide trading services for stocks, options, and other financial instruments. Both companies are expanding into digital currency trading for overseas markets.
Why are these firms entering the cryptocurrency market?
These companies aim to meet growing client demand for diversified investment options, including cryptocurrencies. Transaction fees from crypto trading represent a significant and growing revenue stream in financial markets.
Is cryptocurrency trading legal for Chinese brokerages?
In China, cryptocurrency trading is prohibited for domestic financial and payment institutions. However, Chinese brokerages can offer digital asset services in international markets where it is legally permitted, provided they comply with local regulations.
What are the main risks for brokerages trading cryptocurrencies?
The primary risks include regulatory uncertainty, market volatility, and cybersecurity threats. Firms must also manage compliance across multiple jurisdictions when operating internationally.
How do brokerages profit from cryptocurrency trading?
Brokerages typically earn commissions on each transaction. The more clients trade, the more revenue the brokerage generates—regardless of whether asset prices rise or fall.
Can other Chinese securities firms follow this trend?
While possible, each firm must carefully evaluate regulatory requirements, operational capabilities, and market demand before entering the digital currency trading arena. International expansion requires robust compliance frameworks and risk management strategies.