B2C2’s London office feels remarkably quiet considering the turmoil engulfing crypto markets. It’s mid-June and Bitcoin has just plunged about 20% after crypto lender Celsius Network halted client withdrawals.
Yet the dozens of staff at this particular crypto trading firm appear calm, sitting at their desks with eyes glued to computer screens, in a trendy workplace that's five minutes’ stroll from the Bank of England.
“We are 100% electronic. There are no phones, no squawk box,” said Ed Goh, B2C2’s head of trading, in a meeting room adjoining the trading floor. "It’s all traded over APIs or GUIs [electronic interfaces], or messaging apps when clients want to do a large ‘voice’ trade. So it’s far less noisy than a trading floor in the 1990s.”
In other words, don’t let the apparently placid scene fool you. “It’s busy; it always will be as a liquidity provider during these times,” Goh said. “It’s an all-hands-on-deck moment for the company: checking our systems and how our clients are performing. This is our third 'crypto winter' and companies like ours tend to outperform in periods of market stress."
During that week, and in the weeks that followed, crypto markets underwent their sternest trial yet as the era of easy central bank money draws to a close. Bitcoin, the flagship digital asset, is down about 70% from its peak in November. A number of crypto lending platforms have buckled under the strain, while the collapse of hedge fund Three Arrows Capital continues to reverberate.
B2C2, one of the largest liquidity providers in cryptocurrencies, is looking not just to ride out the storm, but to expand as others batten down the hatches. It executed more than 14m transactions in June, it says, its second busiest month ever by trade count. The firm has ambitious plans to increase its presence in various breeds of crypto derivatives over the coming months as these markets become more institutionalised.
“There are short-term contagion risks,” said Jennifer Elvidge, a former Standard Chartered trader who recently joined B2C2 to help develop its non-deliverable forward business. “But in the medium term this sell-off should flush out the less serious and less credible offerings. There were products in DeFi [decentralised finance] offering 20% yields that clearly weren’t real and as a company we didn't enter that space. We’re focused on products that can help the long-term development of the markets.”
Counterparty risks
B2C2 says it trades tens of billions of US dollars of crypto every month across spot and derivatives. Unlike the large crypto exchanges such as Binance or Coinbase, where retail activity historically drove a large proportion of volume, B2C2 caters solely to institutional clients. About 40% of them come from "traditional finance", it says, such as banks, fund managers and family offices.
Scrutinising that customer base has never been more important than in these febrile markets, where counterparty defaults have become a major concern. Genesis, one of B2C2’s rivals, faces potential losses running into the hundreds of millions of dollars that relate in part to exposure to Three Arrows and crypto lender Babel Finance, CoinDesk reported last month.
B2C2 declined to comment on individual clients, but Goh said the firm isn’t concerned about its client exposures.
"Surprisingly, our risks are less than you might have expected during this time given we trade market-neutral. It’s very much business as usual for us,” Goh said during a recent phone call.
Sources close to the company said it had no exposure to Three Arrows or other embattled crypto firms such as Celsius, BlockFi or Voyager Digital.
Goh said B2C2 starts with “first-line defences” in the form of credit and compliance checks when new clients are brought on board. The firm monitors counterparty credit risk and can issue margin calls in real time, as opposed to waiting until the end of a trading session as is common in mainstream finance. Clients can post crypto, but they must be overcollateralised, often at as much as 140% of the value of the margin call to provide an extra layer of protection.
The firm says it takes a conservative approach to lending, a potential source of trouble in these markets as falling prices and unwinds of leveraged positions have created vicious cycles for some. B2C2 says it only provides funding on a secured basis with minimum collateral levels of 100%. It also says its lending book is smaller than some of its peers and much smaller than its trading franchise.
“We’ve always been pretty risk-averse for a crypto company," Goh said.
Crypto meets TradFi
Founded in 2015, B2C2 has perhaps the strongest links to mainstream finance in the crypto world following its 2020 acquisition by SBI Holdings, one of Japan's largest financial services groups. It now has around 160 staff worldwide, more than 100 of whom are in London. Many cut their teeth in investment banking, including group chief executive Phillip Gillespie (who previously oversaw the G-10 FX business and commodities trading for EMEA at Goldman Sachs) and US head Nicola White, an electronic trading veteran with senior roles at Citadel Securities and Morgan Stanley under her belt.
“We’re taking the best elements from TradFi and building them in the crypto-native space. Some concepts like risk prudence are very similar to TradFi,” said Goh, who spent nine years at high-frequency specialist Optiver before joining B2C2, having started to dabble in trading crypto when waking in the middle of the night after the birth of his first child a few years ago.
“But as a crypto native firm we’re still very innovative and can move quickly when developing new products and tech," he said.
There are some notable cultural differences to traditional finance beyond the obligatory table football set by the side of the trading floor. Many traders are also coders and around a third of employees globally work in technology, perhaps unsurprisingly for a firm where algorithms handle more than 99% of transactions.
B2C2 trades around the clock. That includes weekends, when it trades FX as well as crypto, which are often its busiest days. More than 99.9% of trades are settled within 45 minutes, rather than the day or so it takes for stocks and bonds.
Like a bank dealing desk, B2C2 looks to offset as much exposure as possible from its client flows internally, managing about 70%–80% of its risk this way. It also trades on crypto exchanges, which provide another outlet. Much of its activity comes in contracts for difference, regulated derivatives that track the price of a digital asset. It typically offsets spot crypto and CFD risks in a matter of minutes, though in crypto options doing so can take hours or even days.
“It’s different in options and depends on the liquidity. Trade sizes are big, but because we’re not an agency broker we’re able to manage the risk effectively," said Aakash Desai, an options trader at the firm.
Derivatives expansion
White has said many traditional investors view derivatives as a gateway to crypto markets. B2C2 has become a member of the International Swaps and Derivatives Association, the traditionally bank-centric trade body now developing contractual standards for crypto derivatives, as well as the Futures Industry Association.
Desai said the firm has high hopes for the options business, with volumes roughly tripling since it added the product in October. Options can be used to manufacture structured products to sell through SBI’s network of retail investors in Japan. In May, B2C2 announced what it called the first “dual-digital asset instrument” offering DeFi-like "yields in a regulated centralised finance" environment.
Similar to a dual-currency deposit, investors buy a note that essentially forgoes the potential price appreciation in a particular cryptocurrency over a set time in exchange for a meaty coupon payment. That could be as much as 10% thanks to the elevated volatility in cryptocurrencies, which makes it especially lucrative to sell options giving away your upside beyond a certain level.
B2C2 also started trading non-deliverable forwards last year, a favoured instrument in emerging market currencies, which it hopes will bring more players into crypto. “Clients have been hedging options with cryptocurrencies. By offering NDFs we give our clients another way to hedge, with a set cost of carry, and reduce frictions in these markets,” said Elvidge.
Overall, executives strike a cautiously optimistic note about the future for crypto despite the current market fireworks. Goh said the firm is still hiring staff and continued to bring new clients on board.
"This is what we wanted to see from crypto: volatility," said Goh. "That’s why institutions want to get into these markets. Crypto is a risk asset. That fundamental narrative still holds.”
clarifies nature of B2C2's business