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

I hate to be the guy who keeps saying I called him, but for a long time I had a funny feeling about Celsius Network Ltd., the New Jersey company that abruptly shut down its services on June 12 and triggered the recent cryptocurrency crash. And I can prove it.

The Caisse de depot et placement du Quebec, the second largest pension fund in Canada, is an investor in Celsius, and I had asked the fund about its investment just before the company had a very bad day.

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

Last Monday, after a slump in Celsius and a more than 50% drop in the crypto markets, I contacted the Caisse again. Does the pension fund still stand by what it said earlier? I asked. Would the Caisse still have invested in Celsius if it had known it was going to happen?

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

Fair enough. Although the Caisse did not make public the amount it had invested in Celsius in October 2021, Radio-Canada estimated it at $150 million. If I had thrown $150 million on Celsius, I wouldn’t have much to say either.

But while that may sound like a lot of eggs on the Caisse’s face, the truth is more complicated. The pension fund’s bet on Celsius is an interesting case study for retail investors, especially conservative types: in cryptoland, you can make any seemingly good decision and end up losing.

Celsius is a bit of a crypto bank. It charges interest when lending crypto, and people can deposit crypto and earn their own interest. Its founder, Alex Mashinsky, is a well-known entrepreneur who has launched several billion-dollar unicorn businesses.

But amid falling prices, Celsius has been hit by a bank run – when everyone tries to withdraw their money and the institution realizes it doesn’t have enough on hand. On June 12, Celsius said it would halt withdrawals indefinitely. Then Celsius quietly hired a law firm specializing in bankruptcy.

Meanwhile, Celsius and Mr. Mashinsky have canceled all manner of public appearances, including those at this week’s Collision conference in Toronto, and posted only a handful of tweets and blog posts. (His hiring of bankruptcy attorneys was made public by confidential media sources.)

When Japan’s Mt. Gox stock market crashed in 2013, chief executive Mark Karpeles at least had the decency to hold a press conference and, in local fashion, bow deeply to express his shame and regret. for his incompetence of rank.

Maybe Celsius’ problems will one day be solved, but its users will forever remember how they were treated like schmoes. The Celsius brand is forever tainted.

Objectively speaking, it is quite obvious now that investing in Celsius was not good for the Caisse.

Compare the Caisse’s investment in Celsius with the crypto bet of the Ontario Teachers’ Pension Plan, another large institutional investor. The teachers had invested in Bahamas-based crypto exchange FTX Trading Ltd., and FTX is doing surprisingly well amid 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 a quality that’s hard to discern in last year’s raging bull market: how founders handle crises and pressure. The Caisse and the teachers both rolled the dice, and their positions could easily be swapped today. One was just unlucky.

That’s how venture capital is sometimes. And this is especially the case for venture capital invested in crypto, where even the investments available to retail investors carry much of the risk of investing in startups – due to the fluidity, interconnectedness and ecosystem interdependence and extremely low barriers to entry. for project leaders.

An everyday crypto investor may not be able to put money directly into Celsius or FTX, but they are essentially taking venture capital risk regardless of the coin, company or fund. that he buys.

Ultimately, for anyone who has that crypto itch, but is put off by the volatility, at least some of the Crate movement might even be worthy of emulation.

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

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