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Cryptocurrencies

Asia cryptocurrency race heats up as Japan's SBI buys UK trader

B2C2 purchase intended to push digital currencies into investment mainstream

The price of bitcoin rose to an all time high of $24,000 in the early hours of Sunday.   © Reuters

TOKYO -- Japan has joined the drive in Asia to broaden investor access to cryptocurrencies after SBI Group bought a UK-based dealer in the burgeoning asset class.

By acquiring London-headquartered B2C2, financial services provider SBI aims to be the entry point as Asian and global financial institutions begin taking cryptocurrencies seriously as an investment.

"If an institution wants to buy crypto, there's a bit of a problem. There's not that many places they can go right now," said Phillip Gillespie, CEO of B2C2, in an interview with Nikkei Asia.

The deal comes as interest in cryptocurrencies has been rising. The price of bitcoin, the most traded cryptocurrency, rose to an all time high of $24,000 in the early hours of Sunday -- meaning it has trebled this year.

The deal could also contribute to Japan's efforts to make Tokyo into Asia's foremost financial hub, as regional rivals also start to accommodate investor appetite for access to cryptocurrencies.

On Dec. 18 Singapore bank DBS launched a cryptocurrency exchange platform. The DBS exchange is the first in Singapore to be backed by a traditional bank.

Hong Kong also granted the city's first crypto trading license to OSL Digital Securities Ltd. last week.

With the acquisition, SBI now owns a 90% stake in B2C2, after first buying a minority share for $30 million in July. The final deal price was undisclosed.

SBI Holdings in March surpassed its bigger rival Nomura Holdings in terms of retail brokerage accounts, an attractive proposition for B2C2.

From left, Ryo Suzuki, executive director of SBI's FX and rates division and Phillip Gillespie, CEO of B2C2, speaks to Nikkei Asia in Tokyo. (Photo by Francesca Regalado)

"SBI Group is the biggest internet financial group in Japan so we have the customer base," Ryo Suzuki, executive director of SBI's FX and rates division, told Nikkei Asia. "The cryptocurrency market is not mature in Japan yet, but B2C2's expertise can provide such a service."

Since the partnership, SBI has seen daily volumes increase tenfold on its digital exchange, while B2C2 has seen a quadrupling of OTC volumes, according to a news release. For growth, both are looking at expanding services into crypto options and derivatives, and allowing SBI clients to borrow and lend cryptocurrencies on B2C2's electronic funding platform. But the immediate focus will be signing on bigger institutional clients, said Gillespie.

"SBI has the balance sheet, the licensing, the brand recognition and the trust, which has been lacking in crypto," he said. "That's going to be our major push, going after institutional people who are looking into crypto but are worried about counterparty, custody and liquidity risk."

Kenneth Bok, CEO of Blocks, a fintech advisory company, said: "SBI's acquisition of B2C2 will allow for further institutional investment and liquidity options in cryptoassets."

He said it will likely enhance B2C2's positioning as a cryptocurrency prime broker, referring to providing services for hedge funds.

With near-zero interest rates and government stimulus packages injecting unprecedented cash not only into traditional markets but also alternative assets like bitcoin, cryptocurrencies are becoming more difficult for financial institutions and governments to ignore.

"We believe that this coexistence of fiat alongside digital currency is an inevitable reality that legacy banks and financial institutions will face, thereby compelling them to integrate financial services for cryptocurrency into their business models," said Matthew Dibb, COO of the cryptocurrency index fund Stack Funds. 

The ease with which SBI and B2C2's deal passed regulatory approval in less than six months showed that Japanese regulators see the cryptocurrency market's potential, according to Gillespie. Tokyo has made a play for financial talent since a new national security law this year put Hong Kong's stability into question.

"This is about Japan's future," said Gillespie. "In order to attract business back to Japan, you either lower tax rates or embrace a new asset class."

Among SBI's domestic competitors, Rakuten Wallet and GMO operate crypto exchange and trading services, while Nomura launched digital asset custodian Komainu in June.

"Through the partnership of SBI and B2C2, almost all of SBI's competitors have to trade with SBI to get liquidity in crypto," Gillespie said. "SBI understands that the entire financial services sector could be changing. There's a risk that the traditional business model is going to collapse."

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