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China’s Once-Largest Exchange in Talks to Sell Majority Stake

The founder of China’s Huobi Group, which runs one of the world’s largest cryptocurrency exchanges, is reportedly in talks with investors to sell his almost 60% stake in the trading platform.

Leon Li selling his majority stake in the crypto exchange could be the industry’s largest takeover since the global crypto market hovers at a $2 trillion capitalization. According to a report by Bloomberg last week, the deal which it says could be concluded this month, could see Huobi at $3 billion. Huobi’s existing investors, including ZhenFund and Sequoia China, have reportedly been informed about Li’s intentions at a shareholder meeting last month.

Aside from hoping that the new shareholders will be more resourceful and will value the Huobi brand as it grows, Huobi Global did not provide additional details about the deal.

China's Once-Largest Exchange in Talks to Sell Majority Stake

It’s clear that China ban still hurts Huobi
The Chinese crypto mogul and former Oracle Corp. coder co-founded Huobi in 2013. The exchange has since been the most active crypto trading platform in China at some point. It sought to begin expanding into overseas markets after China banned crypto-related transactions last year. But the push has been met with stiff competition from other major players like Binance and FTX.

The billionaire CEO of FTX, Sam Bankman-Fried, has been identified as among those who have had preliminary discussions with Huobi on acquiring the stake. Another investor that has reportedly shown interest in the deal is Tron’s founder Justin Sun – though Sun has since denied the claim saying he never engaged with Li about the sale. The Chinese government ban, the competition in the international market and the aftermath effect of the recent drawbacks in the crypto market had an impact on Huobi’s fate.

Giving up Chinese users a major factor 
Known for its large concentration of Chinese users, Huobi is one of the major exchanges affected by the ban on crypto-related activities in China. The exchange was quick to act on eliminating existing Chinese users in compliance with government policies by discontinuing the registration of new accounts by mainland China customers last year after Beijing introduced a ban on all cryptocurrency trading and mining in the country. It announced the cessation of account registration effectively from September 24 while it gradually retired existing Mainland China user accounts through Dec 31.

Six months later, CoinGecko’s state of cryptocurrency report for Q1 2022 showed that Huobi’s market share shrank by nearly 40% since the end of Q4 2021. The cryptocurrency aggregator noted that the exchange’s share dropped from its 8.7% share in Oct 2021 to 4.3% at the end of the quarter.

Other market factors 

By June, the exchange was considering carrying out a massive layoff exercise that could see it cut down its staff strength by as much as 30%. Huobi, like several other leading crypto exchanges like Binance, and FTX that have found their way into Uzbekistan, is likely to be be affected by the newly implemented changes by the Uzbekistan government.

The Uzbekistan government last week announced that it would restrict access to some foreign cryptocurrency exchanges for allegedly operating without the proper licences. Just last week, Chinese internet regulators shut down 12,000 accounts and 105 websites that they claimed were involved in cryptocurrency trading and mining.

Meanwhile, in early August, Huobi filed an application to be registered as a digital currency exchange provider with the Australian Transaction Reports and Analysis Centre (AUSTRAC) . This follows the exchange receiving a provisional approval from the Dubai Virtual Assets Regulatory Authority (VARA) in late July.

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