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July 9, 2020

Episode 011

B2C2, CMT & Crypto Finance


B2C2 launched in 2015 as an electronic market maker providing liquidity to exchanges like Coinbase, Bitstamp, etc. In 2016, the team decided to make an aggressive entry into the OTC markets with a focus on being electronic. That part of the business has grown faster than the rest of the industry.

They were the first player to get into the Japanese market in a big way and signed on big broker names like GMO to trade. They hired a Goldman Sachs alum to run the business from Tokyo. In 2019 they expanded into the US markets. Most recently, b2c2 has scored a $30 million investment from SBI. Max Boonen, founder of B2C2, explained,

“That deal with SBI that’s taking a $30 million stake in the company I think that growth story has been quite, quite important in getting them to want to make that transaction. I think that there’s two things: first non-domestic players in the Japanese market, there’s only a handful. So they were quite comfortable with the fact that we had been in their country for quite some time. And secondly it’s a more classical story of, they liked the quality of the offering, especially on the tech side. And there’s another thing that is quite important, which is the quality of the client franchise. I don’t think that there’s anyone in crypto whose got such a valuable institutional client franchise as B2C2.”

JPMorgan recently agreed to extend its services to cryptocurrency exchanges, which has the industry wondering if it marks a shift in the long-term standoff that has existed between banks and crypto firms.

“I think on banking [and] the ice breaking, I don’t want to be too optimistic. Because it wouldn’t be the first time that we think ok, well this is happening,” said Boonen.

“Just the fact that JPMorgan is going to be banking some crypto exchanges, I think it’s nice. we’ll take it. It’s good news obviously. But I don’t want that to make us complacent and think that well it’s ok we don’t need to do more education and work with the banks to get them to be more comfortable with our industry,” Boonen added.

There is a trend among cryptocurrency firms wanting to get into the prime brokerage business.

A report from Blocktower said a few weeks ago, I really like that quote, and I think it was in The Block, that a lot of players are trying to address the prime brokerage feature set from different angles, but thus far it’s really more aspirational than anything else. And I agree with that. I think that everyone’s got an interesting approach, but in each case, there’s something that’s missing,” said Boonen.

Boonen went on to explain the three core ingredients to having a successful prime brokerage:

  • Proper knowhow and an electronic offering/strong automation
  • An existing client base
  • Balance sheet

Chicago Trading Firms Meet DeFi

CMT Digital does a lot of community building work throughout the cryptocurrency industry, including the Chicago DeFi Alliance, which provides support and mentorship to startups in the DeFi space across trading, markets and regulation.

Brad Koeppen, Head of Trading at CMT Digital, explained what motivated the firm to get involved, saying that they are looking to bridge the gap between DeFi and traditional trading as many traditional firms in Chicago take the leap into crypto but are trading on centralized exchanges.

“We believe in DeFi. We believe that there could be a really big opportunity here to create something very valuable for a lot of users on a global basis. Obviously like anything in crypto it’s still in its infancy, but if the right things are built, and the right people are participating, we think this could be a big opportunity. So it’s really about allowing us to learn more on the trading side, on the venture side, allowing these DeFi protocols to get to know us and other trading firms and broadening the knowledge base there, letting everyone learn from the other side — letting DeFi learn from traditional trading firms and the trading firms learn about DeFi.”

Some of the traditional firms that are involved include E&Y and TDAmeritrade.

Koeppen had a bird’s eye view into both the traditional markets and the cryptocurrency markets during the severe market volatility during the March stress test, and he says crypto weathered the storm pretty well.

(27:07) He used the example of the Robinhood trading app going down as an example of a traditional markets failure.

“Even traditional finance, which has been around for a lot longer than crypto and DeFi, they had issues during these time periods as well. So it’s not that there weren’t any issues in crypto, it’s just that these are growing pains that happen even in traditional markets.”

Koeppen added: “I just like to remind everybody that while this is still new technology, it’s a new ecosystem, it’s still around. We did survive that stress test; there definitely were some headaches there, people definitely lost some money. But that happened on the traditional side too.”

He goes on to explain that during times of volatility, liquidity dries up across asset classes. It’s just the number of users in the crypto markets is still less than the traditional markets, so there are not as many participants to absorb or correct for the liquidity crisis that happens in volatility.

Hopefully the ecosystem will continue to grow so that as there is more volatility in the future, in the next cycle there will be more market participants and the industry can weather the storm next time there is an event.

CMT Digital is excited about DeFi. And while yield farming is definitely interesting, Koeppen believes the opportunity will be short-lived and the really high rates of return are not sustainable.

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Gerelyn Terzo
Gerelyn caught wind of bitcoin in mid-2017 and after learning about the peer-to-peer nature of Satoshi's creation has never looked back. Previously she covered institutional investing and fintech for several major trade publications. Gerelyn resides in Verona, N.J.

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