The company that the Caisse de depot et placement du Québec (CDPQ) relies on to venture into cryptocurrencies is realizing for the first time that these could be tightened by stock exchange police, increasing the risk level of this investment by up to 300 million im announced last fall.
Posted yesterday at 7:00am
Celsius Network recently added regulatory changes to the many risks – such as virtual currency theft, lost passwords and irreversible transactions – that await its depositors in a six-page document published online. The term “regulatory risk” did not appear in the previous disclosure.
The London-based company is a platform that pools deposits from cryptocurrencies like bitcoin, offering depositors loans and interest rates that are often in excess of 10%, which is much higher than what banks traditionally offer. Last October, it welcomed the Quebecois wool stocking among its investors. The pension plan manager hadn’t put a figure on the size of his bet, but it could reach as high as 300 million, according to its latest annual report, released last week.
“If I’m an investor in Celsius, that’s definitely a yellow flag because there’s a risk hanging over the company,” said Martin Lalonde, portfolio manager at Rivemont, a firm that offers a bitcoin-based mutual fund.
The company’s business model could be at risk depending on regulatory changes.
Martin Lalonde, portfolio manager at Rivemont
Crypto banks like Celsius are unregulated, but that could change soon. In the US, for example, the partner of the CDPQ has been under the watchful eye of the supervisory 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 security offering that violates the rules.
“CEL (the Celsius digital token) faces a variety of risks […] as well as the regulatory risks,” the company emphasizes, without going into the possible consequences of possible changes in the regulatory framework.
It also makes cryptocurrency loans to hedge funds, but is not considered a bank. That means nothing protects depositors’ money. Additionally, 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 sent by The press.
Lots of uncertainty
Any change in the law south of the border would have consequences for the company, which would then have to comply with a multitude of rules in order to continue its activities. Last February, the SEC imposed fines totaling $100 million on BlockFi, a platform similar to Celsius Network, for violating regulations. It was the first such punishment. Celsius Network could also suffer.
We say to these companies, “Wô, you can’t just do anything”. By releasing its notice, Celsius wanted to let filers know that something was going on. We will see in the next few weeks whether a decision will be made.
The Caisse sees it differently.
Her spokeswoman Kate Monfette said in a statement that her partner’s exit was a “proactive effort to update.” [ses] Disclosure Policies,” adding that the company is “growing fast in a hot industry.”
“This is a good time for us to look into this sector and invest in this new asset class while taking a very focused and thoughtful approach and working with our industry regulation partners,” she wrote.
Mr Lalonde is categorical: CDPQ’s investment is “more risky than when it started” due to the turn of events. However, the portfolio manager adds that it will be a few years before anyone knows if the Quebec institution made a bad bet.
Several American financial institutions such as Morgan Stanley, JP Morgan and Wells Fargo have entered the virtual currency niche. The Caisse’s decision, while risky, is not hasty, believes the Rivemont portfolio manager.
- 1 million
- Celsius Network says it has more than 1 million customers worldwide
Source: Celsius Network
- CDPQ net worth at the end of 2021 was around 420 billion
Source: Caisse de dépôt et Placement du Quebec