Hong Kong cryptocurrency custodian Hex Trust eyes profit, fresh funding in 2024

Hong Kong-based cryptocurrency custodian Hex Trust is looking to turn a profit and raise fresh funding on the back of a recovery in the virtual-asset market, despite potential regulatory headwinds that could affect the company’s operations in the city.

Hex Trust, a seven-year-old virtual-asset custody services provider to institutions, expects to become profitable this year after cutting costs in 2023 amid a surge in cryptocurrency prices in recent months, co-founder and chief executive Alessio Quaglini told the South China Morning Post in a recent interview.

“There’s been a real shift from September and October till now,” Quaglini said. “We see more trading volumes and we see more appetite for risky assets.”

After cutting costs by about 20 per cent throughout 2023, Hex Trust sees the cryptocurrency market’s revival “directly translating into profitability” for the company, he said.

Alessio Quaglini, co-founder and chief executive of virtual-asset custodian Hex Trust. Photo: Handout

Hex Trust plans to “start conversations to structure a [new funding] round” this year, but is yet to determine whether this would be pursued in the first or second half of this year, as investors remain cautious, according to Quaglini.

The company in March 2022 raised US$88 million in a series B funding round, which valued the firm at US$300 million. Investors in that round included Hong Kong’s Animoca Brands and New York-based Liberty City Ventures.

Hong Kong vows to regulate stablecoins, over-the-counter crypto shops

Hong Kong’s proposed regulatory framework for the broader virtual-asset industry may create headwinds for Hex Trust’s operations in the city because cryptocurrency custodians are not covered, according to Quaglini.

While Hex Trust holds a Trust or Company Service Provider licence in Hong Kong that allows it to offer custody services, the company would not be able to work with licensed virtual-asset exchanges under the city’s new rules.

Under Hong Kong’s new regime, Hong Kong’s licensed centralised virtual-asset exchanges must operate their own custody solutions, instead of using third-party custodian services, according to the proposed regulatory framework.

But a bigger concern for Hex Trust is Hong Kong’s proposed regulation for OTC services, Quaglini said.

Hong Kong authorities propose licensing regime for virtual asset exchange stores

The Hong Kong government in February launched a public consultation on regulating local OTC cryptocurrency services, requiring both online platforms and bricks-and-mortar outlets to obtain a licence from the Commissioner of Customs and Excise (CCE), and comply with requirements that include offering spot trade only between a virtual asset and traditional currency.

The proposed rules would prohibit trades between a virtual asset and another virtual asset, unless the OTC services provider had also applied for a cryptocurrency exchange licence.

“We have a sizeable OTC business here in Hong Kong,” Quaglini said. While Hex Trust is “super willing” to be regulated by the CCE, he indicated that the firm cannot accept that it must go through a cryptocurrency exchange to conduct virtual-asset-to-virtual-asset trades.

“If that is the case, I think we need to move [our OTC operations] out of Hong Kong,” he said.