Cryptocurrencies | An uncertain future for Celsius Network, which has received millions from CDPQ

Caisse de depot et placement du Québec (CDPQ) cryptocurrency adventure turns into a nightmare after only eight months. Its partner, Celsius Network, is freezing withdrawals and transfers for its 1.7 million clients due to what is seen as a liquidity crunch – raising fears of the worst for its future.

“Suspending such activities is an extreme plan to destroy trust in any business,” said Philip Getty, chief cryptocurrency analyst at Rivemont Investissements. “So the situation is very critical.”

Celsius, which was presented as a “global company” by CDPQ no later than last fall, offered $150 million (about 190 million treasures) worth of wool socks in Quebec, causing panic to its customers by citing “extreme conditions”. “The market that has caused the price of crypto assets to crash in recent weeks.

Several questions remained unanswered on Monday, the day after the announcement. In a statement sent to Journalismthe director of Quebec’s pension plans – a minority shareholder in Celsius – confined himself to saying he had been following “this file closely” while defending his partner.

Very active on social networks, the CEO of Celsius, Alex Mashinsky, remained silent. In response to one of the applicants on Saturday on Twitter, he claimed that everything is under control.

“Do you know anyone who has had trouble withdrawing their money from a percentile?” he wrote, about 24 hours of freezing.

The only certainty at the moment: “It will take time” before a solution is found, suggests the company, whose assets may be insufficient to honor the withdrawals its customers want to make and pay interest.

“The next few hours and days will be crucial, but a percentage in its current form […] Perhaps he is already dead and buried,” Mr. Getty thinks.

With the major indicators dropping on Monday, the cryptocurrency market followed the same trend. Bitcoin, the most used cryptocurrency, was trading at the end of the afternoon at $23,255, down 12.4%.

risky models

Crypto banks like Celsius are inspired by the traditional banking model. They collect cryptocurrency deposits such as bitcoin and provide depositors with loans and interest, often above 10%.

The problem is that these new players are unregulated and nothing protects depositors’ money. In addition, they are not subject to a minimum amount of capital in their reserves, unlike traditional financial institutions.

Like other platforms, Celsius has found itself under the watch of US regulators by rewarding depositors with its own virtual currency (CEL). According to the Stock Exchange Police, this practice constitutes an offer of unregistered securities which is against the rules.

Professor of Finance and Cryptocurrency Analyst at ESG UQAM, Alexander F. Roche believes that “it will definitely be necessary to review” the Celsius model.

“A bank is no longer able to meet its liquidity demands and has to stop everything overnight, and this undermines its credibility, that’s for sure,” he said. It also undermines investor confidence. It is sending a very bad signal to the market. Investors will wait for a percentage to allow them to withdraw their crypto assets and when that happens, everyone will withdraw their money and the percentage could collapse. »

Unanswered questions

Martin Lalonde, portfolio manager at Rivemont, considers the crypto sector to be promising. He understands Caisse’s interests. Given the turn of events, one thing is clear.

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

It wasn’t possible to speak to Alexandre Sennett, Caisse’s senior vice president and chief technology officer, who praised Celsius’ merits last October when announcing the investment. CDPQ also failed to explain the due diligence process that led him to bet millions on a company whose existence became uncertain eight months later.

“Celsius is working proactively to meet its obligations to its customers and has fulfilled its obligations to its customers thus far,” foundation spokeswoman Kate Monfit said by email.

According to Mr. Lalonde, Caisse may have underestimated regulatory risk because the percentage score was like a bank.