cryptocurrency | Increasing Risks to CDPQ’s Partner

The company that the Caisse de depot et placement du Québec (CDPQ) relies on to venture into cryptocurrencies is recognizing for the first time that it could be tightened by the stock market police, raising the risk level of this investment by up to 300 million announced last fall.

Posted yesterday at 7am.

Julien Arsenal

Julien Arsenal
The press

Celsius Network recently added regulatory changes to the many risks — such as virtual currency theft, lost passwords and irreversible transactions — that await depositors in a six-page document posted online. The term ‘regulatory risks’ did not appear before in the previous explanation.

The company, based in London, is a platform that pools deposits from cryptocurrencies such as bitcoin and offers loans and interest, often over 10%, to savers, which is much higher than what banks traditionally offer. Last October, it welcomed Quebecers’ woolen stocking among its investors. The pension scheme manager had not quantified the size of its stake, but it could be as high as 300 million, according to the most recent annual report released last week.

“If I’m an investor in Celsius, it’s definitely a yellow flag because there’s risk hanging over the company,” said Martin Lalonde, portfolio manager at Rivemont, a company that offers a bitcoin-based mutual fund.

The company’s business model may be compromised depending on regulatory changes.

Martin Lalonde, portfolio manager at Rivemont

Cryptobanks like Celsius are not regulated, but that could change soon. In the United States, for example, the CDPQ’s partner has been under the watchful eye of regulatory authorities – the Securities and Exchange Commission (SEC) for several months. One of the main reasons: Celsius rewards its depositors with its own virtual currency, which some exchange watchdogs say is an unregistered securities offering that breaks the rules.

“CEL (Celsius digital token) faces several risks […] as well as the regulatory risks,” the company underlines, without predicting the potential impact of potential changes to the regulatory framework.


IMAGE PROVIDED BY CISION

Celsius Network, based in London, has received an investment from the CDPQ of up to 300 million.

It also provides cryptocurrency loans to hedge funds, but it is not considered a bank. This means that nothing protects depositors’ money. Moreover, unlike financial institutions, crypto banks are not subject to a minimum capital threshold in their reserves.

On Tuesday, the company did not respond to questions from The press

a lot of uncertainty

Any change in law south of the border would affect the company, which would then have to comply with a multitude of regulations to continue its operations. Last February, the SEC imposed fines totaling $100 million on BlockFi, a platform similar to Celsius Network, for regulatory violations. It was the first penalty of its kind. Celsius Network can also suffer.


PHOTOGRAPH ROBERT SKINNER, THE PRESS

Martin Lalonde, Portfolio Manager and President of Investissements Rivemont

We say to these companies: “Wo, you can’t just do everything”. By issuing its notice, Celsius wanted to let filers know that something is up. We’ll see if a decision is made in the coming weeks.

Martin Lalonde

De Caisse sees it differently.

Her spokeswoman, Kate Monfette, said in a statement that her partner’s departure was a “proactive effort to [ses] disclosure policy,” adding that the company was “hyper-growing in a hot industry.”

“Now is a good time for us to look at this sector and invest in this new asset class, while taking a very focused and thoughtful approach and working with our sector regulation partners,” she wrote.

Mr. Lalonde is categorical: The CDPQ’s investment is “riskier than it was at the start” because of the turn of events. However, the portfolio manager adds that it will be a few years before he knows if the Quebec institution has made a bad bet.

Several US financial institutions such as Morgan Stanley, JP Morgan and Wells Fargo have made their way into the virtual currency niche. The Caisse’s decision, while risky, is not hasty, says Rivemont’s portfolio manager.

More information user manual

  • 1 million
    Celsius Network says it has more than 1 million customers worldwide

    Source: Celsius Network

    420
    CDPQ’s net worth at the end of 2021 was approximately 420 billion

    Source: Caisse de dépot et placement du Québec

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