Crypto market maker B2C2 is pushing Japan's biggest trading houses to buy bitcoin

When institutions? Perhaps a more interesting question at this point is where institutions? One place trading firm B2C2 has set its sights on is Japan.

The question of if and when professional trading firms will start seriously investing in bitcoin and other digital assets has been hanging over the field since the 2017 bubble. Three years later, the cryptocurrency market is soaring again and such questions have taken on fresh urgency.

This time, proponents don't just have their eyes on Wall Street's hedge funds and asset management firms, but also publicly traded companies that might allocate a portion of their balance sheet as part of a treasury reserve strategy — the way MicroStrategy and Square already have. 

"The public company treasury trade is real," as noted by crypto hedge fund Parataxis CEO Edward Chin in a message to The Block. According to Chin, companies are building positions based on the rationale that reserves held in bitcoin will be more stable in the long run than US dollars. 

If B2C2 gets its way, the trend won’t be confined to the US. In Japan, specifically, the company has been trying to convince the nation’s “trading houses” — uniquely structured firms that engage in international trade spanning many sectors and products —  to invest in bitcoin.

Sogo shosha

B2C2 has spoken with two of Japan's five large trading houses — known as sogo shosha — and plans to speak to two more over the course of the next week. 

Called the "big five" — Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo — Japan's sogo shosha have market capitalizations that range from $10 billion to $42 billion and revenues topping as much as $136 billion, according to Business Insider. The firms are akin to large trading conglomerates like Warren Buffett’s Berkshire Hathaway. Indeed, Buffett recently poured more than $7 billion into several trading houses.

Venturing into bitcoin may be new for the sogo shosha, but it would speak to their versatile nature. As noted by Nikkei, the sogo shosha are accustomed to changing with the times. 

This is “epitomized by itochu, which has grown from a 19th century textile merchant into a diversified business group covering sectors including apparel, foodstuffs, steel, information technology, and natural resources,” according to Nikkei. 

Bitcoin could join that list, according to B2C2’s Kento Yamazaki. 

"The crypto scene is definitely very new to them, so they've never really had a need for it. They've only invested in crypto-related projects," Yamazaki, B2C2's VP of sales and trading for APAC. 

But Yamazaki said that in response to B2C2’s presentations: “We’re starting to see some real interests and curiosity from these guys." 

B2C2’s pitch is fairly straightforward. "We can handle the trading, settlement, and custody aspect of this," said Yamazaki. "We believe that allocating a part of a company balance sheet is a great way to market hedge, settlement hedge but it is also a good PR campaign," he added. 

Indeed, after Michael Saylor of MicroStrategy went on record to say his firm would adopt a bitcoin standard approach to its balance sheet, the firm made a flurry of headlines in the financial press.

A valuable partnership 

If B2C2 is able to coax Japan’s trading houses into crypto, it would mark a transition for the local market, which up to this point has been dominated by retail participants. 

It would also be remarkable because the strict regulatory environment for both domestic and foreign exchanges, which aims to ensure a high degree of consumer protection, has made it challenging for foreign firms to make inroads in Japan. These regulations came to exist after the collapse of Mt Gox, the now-defunct bitcoin exchange that went bankrupt in 2013.

Entrance into the Japanese market requires licenses with the FSA (PSA and FIEA license for spot trading), a physical presence in Japan and company representatives physically residing in Japan. Still, even if a company checks all the regulatory boxes, it will struggle to do business in Japan without a good reputation, according to B2C2. 

That’s where its partnership with SBI comes in.  

SBI, one of the largest financial services firms in Asia, has given B2C2 some more credibility among traditional Japanese companies. SBI purchased a minority stake in B2C2 over the summer and has extended its balance sheet to the firm.

Besides perhaps giving it a leg-up with Japan’s trading houses, the reputational chops of SBI may also help B2C2 elbow its way into a future market for central bank digital currency (CBDC). 

Japan currently has no official plans to launch a CBDC. But the new prime minister is “very-tech focused,” said Yamazaki.

“This leaves us to think we could start seeing some concrete plans in Japan for CBDC in the future,” he added. “We aim at capitalizing on that using SBI's strong connections with the Japanese government.”