Demand for Security in Crypto Market Increases, Huobi Tech Brokerage OTC Grows against the Market

Demand for Security in Crypto Market Increases, Huobi Tech Brokerage OTC Grows against the Market

 

In general, over-the-counter (OTC) trading varies with market volatility. The trading volume increases in good times and shrinks in bad times, and this effect is even more pronounced in the crypto market. However, there are exceptions to this rule. As some institutions in the crypto market experience solvency issues and anti-money laundering (AML) regulations are tightened, crypto brokers with a strong compliance infrastructure may be able to have their business grow amidst the bear market. The brokerage OTC business of Huobi Technology Holdings Limited (“Huobi Tech”, Stock Code: 1611. HK) has been launched for over half a year, and its trading volume has exceeded US$500 million during such time. The head of the business, Ariel Liu, said that the growth in the second quarter of this year was more obvious.

 

According to related statistics, the total market capitalization of the crypto market fell from a record high of $3.08 trillion in the second quarter to $892.6 billion on June 30, a reduction of $2.19 trillion of market value, which is a contraction over 70%. Among them, Bitcoin trading volume fell by more than $2 trillion to just $2.8 trillion in the second quarter.

 

The decline in volume was accompanied by a series of black swan events. Since May this year, some crypto institutions have experienced difficulties in solvency and even resulted in bankruptcy due to significant market volatility and risk management issues. This has made the crypto industry keen to discuss the topic of risk management in various exchange and panel discussions recently. Many industry insiders have expressed that safety should come first. This mindset has also led institutions to be extra careful when choosing counterparties and partners. Those institutions with better compliance practices and backgrounds are more likely to be favored.

 

The current series of issues have revealed that the problem lies in two aspects. One is the operational level, whether adequate warnings, remedial plans, and security measures are in place. Similar to leading companies in the industry, Huobi Tech’s Brokerage OTC provides real-time online trading and additional services such as licensed custody services where assets are hosted on the licensed and compliant crypto asset custody platform under Huobi Tech’s subsidiary. Moreover, the crypto custody service is built by a top security technical team with 0 security incidents in 9 years of experience in the industry’s frontline, which is an extra highlight in the crypto industry.

 

On the other hand, the recent series of events has exposed the issues relating to counterparty risk. Ariel understands the industry’s recent caution, and she pointed out that “selecting a compliant counterparty is a priority.” The feedback from the market crash indicates that regulators around the world generally consider the lack of regulation as the underlying factor for the market’s recent problems. This also coincides with a series of global regulatory policies over the past two months, with senior U.S. officials calling for strict regulation of stablecoins in May, and the “Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022” published by the Hong Kong government in late June and introduced to the Legislative Council for first reading on July 6. The Bill seeks to establish a licensing regime for Virtual Asset Service Providers (VASPs), requiring the crypto industry to fulfill its statutory obligations to combat money laundering and terrorist financing.

 

In response to the market changes, the compliance team of Huobi Tech commented that the issue of compliance in the crypto market has actually become much more prominent this year. A representative said, “we have always attached great importance to the compliance of our partners, and in turn, our counterparties have also been increasingly emphasizing compliance. In particular, licensed institutions have high compliance requirements.” According to the description of the compliance team, the compliance standards and processes of Huobi Tech’s Brokerage OTC business, are formulated with reference to the requirements of Hong Kong regulators.

 

It is understood that compliance means focusing on customer and counterparty due diligence and anti-money laundering (AML). AML is generally conducted in accordance with international standards that comply with FATF requirements. The AML regime is intended to ensure transactions do not involve assets or funds from untraceable sources, and does not violate the local legal regulations. Counterparty due diligence includes diligence on the business capacity and liquidity of the counterparty, which depends on regulatory requirements and the needs of each institution.

 

Huobi Tech is a company listed on the main board of the Stock Exchange of Hong Kong. According to the interim results report, the total revenue of the half year in the reporting period was HK $350 million. Compared with its previous results, this development is not considered fast in the crypto industry. However, Huobi Tech has focused on compliance development and obtained many licenses for compliance with applicable regulatory regimes. In doing so, it can tap on the huge potential of the market through compliance. The rapid growth of Huobi Tech’s Brokerage OTC business may be a reference point for those in the crypto industry that are still hesitant to comply with regulations.