Opinion: What we learn from Caisse’s bad bet on the crypto bank Celsius

I hate to be the guy who keeps saying I called him, but I’ve long had a weird feeling about Celsius Network Ltd., the New Jersey company that abruptly shut down services on June 12 and sparked the recent cryptocurrency. shock. And I can prove it.

The Caisse de Dépot et Placement du Québec, Canada’s second-largest pension fund, invests in Celsius, and I asked the fund about its investment shortly before the company had a very bad day.

On June 3, the Caisse told me: “All of our investments are subject to a rigorous screening process…As a long-term investor, our investment decisions are based on long-term value creation and not short-term fluctuations. … Celsius is a fast-growing company in a nascent industry.”

Last Monday, after a meltdown in Celsius and a more than 50 percent drop in crypto markets, I reached out to Caisse again. Does the pension fund continue to maintain what it said before? I asked. Would the Caisse still have invested in Celsius if it had known this was going to happen?

“We have nothing new to share in this file,” a spokesperson replied.

That seems fine to me. While Caisse did not disclose how much he had invested in Celsius as of October 2021, Radio-Canada put it at $150 million. If he had thrown $150 million at Celsius, he wouldn’t have much to say either.

But while it may seem like a bunch of eggs on Caisse’s face, the truth is more complicated. The pension fund’s bet on Celsius is an interesting case study for retail investors, particularly conservative types: in cryptoland, you can make all the seemingly right decisions and still end up losing.

Celsius is a bit of a crypto bank. You charge interest when you lend cryptocurrency, and people can deposit cryptocurrency and earn their own interest. Its founder, Alex Mashinsky, is a prominent entrepreneur who started several billion-dollar unicorn companies.

But amid falling prices, Celsius was hit by a bank run, as everyone tries to withdraw their money and the institution realizes it doesn’t have enough on hand. On June 12, Celsius said that she would stop withdrawals indefinitely. Ella Celsius then quietly hired a law firm that specializes in bankruptcy.

Meanwhile, Celsius and Mashinsky have canceled all public appearances, including at this week’s Collision conference in Toronto, posting only a handful of measly tweets and blogs. (His hiring of bankruptcy attorneys was disclosed through confidential media sources.)

When Japan’s Mt. Gox stock market crashed in 2013, CEO Mark Karpelès at least had the decency to hold a press conference and, in local fashion, take a deep bow to express shame and regret at his utter ineptitude.

Perhaps Celsius’s problems will be resolved one day, but its users will forever remember how they were treated like fools. The Celsius mark is tainted forever.

Objectively speaking, it is now quite evident that investing in Celsius has not been good for the Caisse.

Compare Caisse’s investment in Celsius to the crypto bet of the Ontario Teachers’ Pension Plan, another big institutional investor. The masters had invested in the Bahamas-based cryptocurrency exchange FTX Trading Ltd., and FTX has done surprisingly well in the midst of the recession, buying up and bailing out all sorts of other crypto companies.

There is an obvious distinction between Celsius and FTX. But the real difference comes down to one hard-to-discern quality in last year’s raging bull market: how founders handle crises and pressure. Both Caisse and Teachers essentially rolled the dice, and their positions today could easily be swapped. One was just unlucky.

That’s what venture capital is like sometimes. And that’s especially true for venture capital put into crypto, where even investments available to retail investors carry many of the risks of investing in startups, due to how fluid, borderless, and interdependent the ecosystem is, and extremely low barriers to entry. for project proponents.

An ordinary crypto investor may not be able to put money into Celsius or FTX directly, but they are essentially taking on a venture capital risk no matter what coin, company, or fund they buy.

Ultimately, for anyone who has that crypto itch but may be turned off by volatility, at least part of Caisse’s move might even be worth emulating.

Most of Caisses’ $420 billion in assets under management are dull and stable. The $150 million he threw into a high-risk, high-reward gamble is less than a tenth of 1 percent of his bankroll.

Your time is valuable. Get the Top Business Headlines newsletter conveniently delivered to your inbox morning or night. sign up today.