Collapse of cryptos: a Caisse de dépôt partner in hot water

The announcement came eight months to the day after the CDPQ invested US$150 million in Celsius, a company that offers crypto lending services.

Due to extreme market conditions, we are announcing today that Celsius is pausing all withdrawals, trades and transfers between accountsthe company wrote in a statement. (New window) sent to its customers shortly before 11 p.m. Sunday.

We understand that this is difficult news, but we believe that our decision […] is the most responsible action we can take to protect our communitycontinues the press release.

As Radio-Canada reported in late May, Celsius had been hit hard by a crash in cryptoasset prices that took place in the week of May 9. Some customers of the platform had complained that they lost everything after obtaining cryptocurrency loans from Celsius.

Since then, Celsius has struggled to recover. According to company statistics, Celsius has lost nearly US$2 billion in customer deposits over the past month. Celsius claimed in October that it manages $27 billion in cryptoassets on behalf of its clients. This figure had dropped to $12 billion in May. Since then, Celsius no longer publishes on its site the total assets that the company manages.

The value of CEL, the cryptocurrency the company created and encourages its customers to use, has plummeted from around US$3 in April to US$0.20 today. At the time of investment CDPQthe price of CEL stood at US$5.60.

Screenshot of Celsius website

Photo: Screenshot – Celsius Network

Cryptocurrency price collapse

Current crypto market conditions indicate that Celsius is probably not out of the woods. Most of the major cryptocurrencies nosedived over the weekend as a wave of panic ripped through the market, driven in part by worrying economic indicators hitting the global economy.

On Monday morning, the S&P 500 lost more than 3% of its value, while Dow Jones lost just over 2.5%. These two indices are having a difficult year: they have respectively fallen by 21.4% and 16.3% since the start of 2022.

The price of Bitcoin, the most popular cryptocurrency, had fallen almost 16% in 24 hours on Monday morning. From a high of over US$67,000 in November 2021, the price of Bitcoin, which is very volatile in normal times, is now at just over US$23,000.

For Hilary J. Allen, a law professor at the Washington College of Law and an expert on crypto regulation, it is little wonder to see the crypto market crashing in the current economic circumstances.

It’s no surprise that in an environment of rising interest rates, the easy money leaves the system. There is less money to invest in cryptoassetsshe judges.

Ms. Allen says investors who have placed cryptoassets in Celsius could be hit hard if the company collapses.

For people who didn’t have a lot of means to invest in it, it’s potentially devastating. We have seen with [l’effondrement des cryptomonnaies Terra et Luna en mi-mai] that there has been at least one suicide. People were posting suicide prevention lines in groups on Reddit and so on. I suspect we’ll see the same with Celsius because a lot of people invested a lot of money that they couldn’t afford to lose.adds Ms. Allen.

A criticized business model

Celsius CEO Alex Mashinsky

Photo: Screenshot – LinkedIn

When investing in Celsius, the CDPQ touted the company’s business model. Blockchain technology has disruptive potential for several sectors of the traditional economysaid Alexandre Synnett, Senior Vice President and Chief Technology Officer at CDPQin a press release.

The Radio-Canada investigation documented concerns raised by crypto experts, who pointed out that Celsius is using financial practices similar to those that led to the implosion of the financial system in 2008. Several US states had elsewhere alleged that the company was selling unregistered securities and forced the company to limit its activities in the United States.

The federal Department of Finance, which did not offer specific comment on Celsius, did rule that companies that act unregulated (as Celsius does) are doing business in Canada illegally.

The report also revealed that Celsius has in its orbit several individuals who find themselves at the heart of controversies in the crypto world, including one person linked to sites that Canadian financial authorities have an eye on.

In response to questions arising from our investigation, which raised concerns about the activities of Celsius, the CDPQ reiterated its support for the company. All Caisse investments are subject to a rigorous analysis process in order to make informed decisions in the interest of our depositorsreplied a spokeswoman.

Dismay among customers

Sunday night’s announcement caused consternation among Celsius customers. In response to the company’s tweet about the transaction freeze, many customers lambasted the decision. The radio silence of the CEO of the company, Alex Mashinsky, also reacted.

Alex constantly tweets, he brags that Celsius is a wonderful company, he criticizes other platforms. And now, when we desperately wait to hear it, it is silent. He offered no updates as the community endures this ordeal. IT’S DISGUSTINGwrote a customer in a Telegram group of the Celsius community.

In response to a customer tweet on Saturday, Alex Mashinsky replied, do you know a single person who had trouble withdrawing their funds from Celsius? Why are you sharing fear and misinformation?

Celsius did not respond to our questions. At the time of publication, the CDPQ did not offer comment, but this article will be updated when we receive their response.

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