Cryptocurrencies | Uncertain future for Celsius Network, which received millions from the CDPQ

The adventure of the Caisse de depot et placement du Québec (CDPQ) in cryptocurrencies turns into a nightmare after only eight months. Its partner, Celsius Network, is freezing withdrawals and transfers for its 1.7 million customers due to what is perceived to be a cash crunch – raising fears for the worst for its future.

Julien Arsenault
The Press

Richard Dufour
The Press

“Suspending activities like this is an extreme plan that destroys trust in any business,” said Phillippe Jetté, senior cryptocurrency analyst at Rivemont Investissements. So the situation is absolutely critical. »

Presented as a “world-class company” by the CDPQ no later than last fall, Celsius, which received millions of dollars from the woolen stockings of Quebecers, caused consternation among its customers by evoking ” extreme market conditions that have led to the collapse of the price of cryptoassets in recent weeks. Several questions remained unanswered on Monday, the day after the announcement.

The only certainty: it “will take time” before finding a solution, suggests the company which probably does not have the backs strong enough to honor the withdrawals that its customers wish to make, immersed in uncertainty.

“The next few hours and days will be crucial, but Celsius in its current model […] is probably already dead and buried, ”believes Mr. Jetté.

“I don’t think it’s the end for Celsius, but the model will certainly have to be reviewed,” comments Alexandre F. Roch, professor of finance at UQAM.

“What we see here is the crypto-asset equivalent of a bank run. With the fall in value of cryptocurrencies, Celsius realizes that the value of its assets is insufficient to pay the interest. We are learning old lessons from the past about the stability of the banking system,” adds the professor.

“A bank that is no longer able to meet liquidity demands and has to stop everything overnight, that undermines its credibility, that’s for sure. It also undermines investor confidence. It sends a very bad signal to the market. Investors will wait for Celsius to allow them to withdraw their cryptoassets and when that happens everyone will withdraw their money and it could crash Celsius. »

As the major indices tumbled on Monday, the cryptocurrency market followed the same trend. The most widely used cryptocurrency, bitcoin was trading at US$23,965, down 9.5%.

Risky models

Cryptobanks like Celsius are inspired by the model of traditional banks. They pool deposits of cryptocurrencies like bitcoin and offer loans and interest, often above 10%, to depositors.

The problem is that these new players are not regulated and nothing protects depositors’ money. In addition, they are not subject to a minimum capital threshold in their reserves, unlike traditional financial institutions. Like other platforms, Celsius has found itself under the scrutiny of US regulators by remunerating its depositors with its own virtual currency (CEL). According to the stock market police, this practice constitutes an offer of unregistered securities which violates the rules.

Unanswered Questions

The CDPQ has never specified the size of its investment in Celsius. As of December 31, its value fluctuated between 150 and 300 million, according to the institution’s most recent annual report.

Portfolio manager at Rivemont, Martin Lalonde considers the cryptocurrency sector promising. He understands the interests of the Caisse. However, one observation is necessary.

“What we can say is that they didn’t bet on the right colt when they left,” says Mr. Lalonde.

Monday morning, the CDPQ had not commented on the situation at Celsius. Nor did she explain the due diligence process that prompted him to bet millions on a company whose existence is uncertain eight months later.

According to Mr. Lalonde, the Caisse may have underestimated the regulatory risks since Celsius was like a bank.