Source: The Funding; Compiled by: Golden Financial Claw

Japanese financial giant SBI Holdings has completed a series of major crypto investments over the past few weeks.

Earlier last week, it became the sole investor in Gauntlet’s $125 million Series C round and EDX Markets’ $76 million Series C round.

Last month, it agreed to acquire Japanese crypto exchange Bitbank for nearly $289 million, and in February it acquired a controlling stake in Singaporean crypto exchange Coinhako.

In addition, SBI recently participated in Digital Asset’s $355 million funding round, Morpho’s $175 million token round, Circle’s $222 million token pre-sale for its Arc blockchain, and has participated in multiple other investments.

Last month, SBI launched JPYSC, Japan’s first yen stablecoin backed by a trust bank.

SBI is no stranger to the crypto space, having invested in the space since 2016. But the frequency and intensity of its recent actions are particularly outstanding. Why is SBI investing so heavily in crypto now? What are the considerations behind these initiatives? What signals do they reflect on traditional financial institutions’ interest in digital assets and institutional adoption trends?

Looking at these recent transactions of SBI together, they point to a broader strategy with on-chain finance at its core.

An SBI spokesperson told The Block: "At SBI Group, we are driving on-chain transformation across the group and expanding our digital asset business to prepare for the next phase of growth. In the on-chain space, we aim to provide a full range of capabilities from exchanges and asset tokenization to market platforms. Our recent acquisitions, investments and collaborations are all part of this group-level strategy."

The spokesperson said that the full arrival of the "token economy" is "imminent" - that will be an era in which all assets are tokenized, and everything from transactions, settlement to execution of various contracts are completed on the blockchain.

The spokesperson said: "SBI Group is committed to establishing itself as a leading global company as early as possible in the rapidly developing digital asset field."

Joseph Goh, director and head of Asia Pacific at crypto investment banking and advisory firm Areta, said SBI is pursuing a strategy that few traditional financial groups have tried.

SBI is doing something that no other financial group in Asia has attempted: building an end-to-end digital asset franchise covering issuance, settlement, market infrastructure, asset management and retail distribution, with a cross-border presence, not just at home," Goh said.

He pointed out that one of the clearest contexts is asset management. By combining Gauntlet’s institutional-grade on-chain capabilities with SBI’s controlled distribution channels through Bitbank and Coinhako, “we see the beginnings of Asia’s first large-scale on-chain asset management business,” Goh said. "The key point is that SBI is not buying exposure to crypto assets, but the infrastructure of the next generation financial system."

Goh believes that settlement is another major focus. He cited SBI’s launch of the JPYSC stablecoin, distribution of USDC in Japan through its joint venture with Circle, and SBI Shinsei Bank’s joining the JPMorgan-backed Partior blockchain network to issue tokenized deposits for cross-border payments.

Goh said: "Whoever controls the yen link in on-chain settlement may occupy a strategic position in the future of Asia's finance, and it is this system that SBI is building."

Why now?

One reason is that Japan is overhauling its regulatory framework, transforming crypto assets from payment instruments into regulated financial instruments on par with stocks.

Last month, Japan’s lower house of parliament advanced a bill that would classify cryptocurrencies as financial instruments, paving the way for products such as exchange-traded funds (ETFs) while introducing stricter trading and disclosure rules. The legislation is expected to come into effect next year after being passed by the House of Lords, and will reduce the top capital gains tax on crypto assets to 20% from the current 55% from 2028, in line with stocks and bonds.

SBI appears to be getting ahead of these changes, said Yat Siu, co-founder and executive chairman of Animoca Brands. He believes that the company is not waiting for greater regulatory clarity, but is building capabilities across crypto to be ready when digital asset adoption accelerates.

Siu and others also pointed to the current market environment. Quynh Ho, head of venture capital at GSR, and Mike Bucella, co-founder and managing partner at Neoclassic Capital, saidBear markets tend to provide the best long-term investment opportunities because valuations are lower and there is less competition for deals.

If you are playing for the long term like SBI is, you want to be in the market at the trough of the cycle because these deals will become extremely valuable when the market cycle reverses and the industry expands over the next decade," Bucella said.

An SBI spokesperson said the company looks for startups whose innovative technologies have been deployed in real-world services. The spokesperson said that Gauntlet’s risk management and optimization technology is critical to on-chain finance, while EDX Markets, as an institutional-oriented crypto exchange, helps traditional financial institutions enter the digital asset market. “Both provide integral capabilities for the broader adoption of digital assets we are committed to,” they added.

For Gauntlet, the relationship goes beyond financial support. "Mainly distribution and market access," co-founder and CEO Tarun Chitra said when asked about the strategic value SBI brings beyond funding. He said SBI's presence in Japan and Asia will help Gauntlet expand its platform to financial institutions, fintech companies and tokenization projects that it has struggled to reach on its own, including expanding its stablecoin coverage from U.S. dollar- and euro-backed stablecoins to currencies such as the Japanese yen and Mexican peso.

EDX Markets sees similar strategic value. CEO Tony Acuña-Rohter said SBI’s global network of relationships in financial services will support the company in expanding its trading, clearing and settlement capabilities.

We are actively engaging with SBI’s broader digital asset ecosystem, including market makers, stablecoin projects, tokenization efforts and brokers, to jointly explore opportunities to advance institutional market infrastructure,” said Acuña-Rohter.

Will other institutions follow suit?

Most executives I spoke to expect more traditional financial institutions to take similar steps in the coming months and years, although the pace may depend on the regulatory environment and customer demand in each market.

This shift has already begun, as evidenced by recent on-chain initiatives by traditional financial giants such as New York Stock Exchange owner Intercontinental Exchange, Citigroup and Morgan Stanley.

We expect institutions in jurisdictions with clearer regulatory frameworks to take the lead. Brokers and asset managers with large retail client bases will be natural followers, said Chitra.

GSR’s Ho also expects institutional activity to focus on areas with clear use cases, including stablecoins and payments, tokenized real-world assets, institutional trading infrastructure, prediction markets, treasury management, collateral optimization and on-chain capital markets.

Notably, Animoca’s Siu said he is aware of “large” crypto deals being explored by some traditional financial institutions and expects more such deals to emerge as tokenization becomes a larger strategic priority across the industry.

“I expect to see more and more large deals emerging,” Siu said, adding that he couldn’t think of any large financial institution that “isn’t looking at crypto or digital assets in some form or fashion.”

Areta’s Goh says this trend is becoming more evident in Asia. He pointed to South Korea as the next market to watch, adding that diversified financial groups that combine banking, securities and retail distribution are best placed to follow SBI's lead. Goh also said that digital assets have become a strategic focus for banks, asset managers, exchanges and payments companies in the region, with stablecoins and payments leading institutional interest, followed by institutional trading, asset management and market infrastructure.

Risk factors

Despite the positive outlook, SBI's strategy is not without risks.

Siu said much will depend on how quickly the regulatory framework continues to evolve and how quickly institutional adoption of digital assets accelerates. If regulation takes longer than expected, it may also take longer to realize returns on current investments.

“Execution is the real test,” Goh said. He noted that SBI’s acquisition strategy helps mitigate some of the integration risks, as both Bitbank and Coinhako operate regulated crypto exchanges, while the company’s minority investments also carry relatively limited integration risks themselves.