The Caisse’s crypto Debacle

La Caisse- Quebec’s second largest pension fund

Alex Mashinsky- Celsius CEO

La Caisse, Quebec’s second largest pension fund and the one most likely to walk into a lamppost, was a major backer of Celsius, a cryptocurrency lending platform that has now imploded. Celsius is the talk of the markets today after it halted withdrawals. Its proprietary coin has nearly lost all of its value.

The Caisse invested about $150 million as a co-lead in a financing that valued Celsius at $3 billion in October 2021. The Caisse stated at the time that it was focused on making “opportunistic” investments in “diamond in the rough” early-stage blockchain companies. It was described as a “small diversification play”. In practise, cryptocurrency has proven to be more like leverage than diversification.

Alexandre Synnett, the Caisse’s Chief Technology Officer, stated at the time that the Caisse would not consider allocating funds directly to coins. His exact words were: “Bitcoin? “No way, no how.” However, despite its flaws, Bitcoin has fared better. For the time being.

The Caisse’s investment in Celsius is a drop in the bucket. More importantly, given the persistent outperformance of technology over the last decade and the job-preservation inclinations of people working for pension funds, I have little doubt that the Caisse has been caught partying like it’s 1999. For example, records show that it tripled its position in Shopify at prices above $1k in the first quarter of 2021.

They also increased their stakes in Tesla and Zoom while selling Suncor and Canadian Natural Resources. Picking on specific trades over short time horizons is always unfair, but the larger point is that the Caisse should simply index.

Many rational people recognised Celsius as a type of Ponzi scheme. I don’t see the point in rehashing the details, but if you’re interested, the Caisse’s French counterpart wrote a detailed post outlining the Caisse’s investment, Celsius’s shady connections, and questionable regulatory practises.

The anxiety was palpable. Celsius customers were waiting for company CEO Alex Mashinsky to appear in a Twitter Q&A on the evening of May 17. Meanwhile, the mood among the participants was rising. The moderators were attempting to summon them to order in some way.

The crypto market had plummeted the previous week, with $200 billion disappearing from the ecosystem in 72 hours.

Celsius users, like other cryptocurrency investors, had taken a beating. Some users complained that they had lost all of their savings after taking out loans on the platform, which functions as a cryptocurrency bank.

La Caisse- Quebec's second largest pension fund

According to the company’s website, funds managed by Celsius on behalf of its clients have shrunk by $6 billion in less than two weeks, from $18 billion to $12 billion. By October 2021, this figure had reached a high of $27 billion.

After an hour, Mr. Mashinsky appeared, joining the session from a conference he was attending in Palm Beach, Florida. He attempted to calm things down and answer agitated attendees’ questions, but some were unsatisfied.

This could be my last day as a member of the Celsius community, and I won’t be back, an angry long-time customer told him.

It’s excellent! It’s excellent! We get hundreds of new customers every day, said Mr. Mashinsky, irritably. You don’t want to be here, do you? Not a problem!

Alex Mashinsky and his team, on the other hand, had every reason to be overjoyed a few months ago.

On October 12, 2021, the Caisse de dépôt et placement du Québec (CDPQ), which manages the retirement funds of over 6 million Quebecers, had just announced its participation in a $400 million financing round at Celsius in collaboration with a private American investment firm.

The CDPQ never specified the exact amount invested and, once again, refused to reveal it to us.

Our investigation, however, reveals that the Caisse’s contribution to this round of financing is $150 million. According to documents released by Celsius to British financial authorities, CDPQ purchased 7,328 Series B shares of the company for $20,469 each.

In Canada, the announcement of funding for a company providing financial services in the controversial world of cryptocurrencies raised eyebrows. Some observers have mentioned, among other things, the industry’s significant environmental impact and the ecosystem’s near total lack of regulation.

Nonetheless, the institutional investor was proud of their commitment to a company that, in their opinion, represented the financial world’s future.

In a press release at the time, Alexandre Synnett, senior vice-president and chief technology officer at the CDPQ, stated that blockchain technology has the potential to disrupt several sectors of the traditional economy.

You can seek the rest of the information here.

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