The Caisse de dépôt et placement du Québec has made its inaugural investment in a cryptocurrency company, even amidst growing scrutiny of the digital-asset world from global regulators.
The Caisse, which is Canada’s second-largest pension fund manager, announced Tuesday that it is participating in a US$400-million funding round for New Jersey-based cryptocurrency lending platform Celsius Network. Investing alongside the Caisse is San Francisco-based WestCap Group, a private equity firm set up by former Airbnb executive Laurence Tosi.
Celsius’s core business is facilitating the lending of cryptocurrency to retail and institutional investors. Users deposit cryptocurrency using the Celsius app, and the company then lends the funds out to borrowers for yields as high as 17 per cent.
“The way we look at Celsius is that it is the bank of the future. They offer lending and deposit services, not just to retail investors but to institutions as well. Plus we really liked the management team and the expertise they offered in the cryptocurrency world,” Alexandre Synnett, executive vice-president and chief technology officer at the Caisse, said in an interview.
The investment values Celsius at more than US$3-billion, a significant jump in the company’s valuation from its previous funding round last June. At that time, the company was worth about US$120-million. The controversial cryptocurrency company Tether International – which issues the stablecoin Tether, and whose executives are being probed by the United States Department of Justice over allegations of bank fraud – was the lead investor in Celsius’s first equity raise.
In a statement announcing the latest financing, Celsius said it would use the funds to double its team from 486 to 1,000 employees, and to expand globally. The company has processed US$8.2-billion in loans and says it has one million users registered on its platform.
Crypto lending has come under heavy pressure from U.S. regulators, who say the services do not comply with securities laws. Last month, the U.S. Securities and Exchange Commission blocked crypto exchange giant Coinbase from offering a new crypto lending product that would have allowed users to earn interest on holdings of a stablecoin called USDC. (A stablecoin is a type of cryptocurrency that is backed by an underlying asset, such as the U.S. dollar, to prevent wild price fluctuations.)
Celsius Network, too, has been targeted by U.S. regulators. Texas and New Jersey recently accused the company of offering residents unregistered securities. The states argue that Celsius markets its products as alternatives to bank savings accounts, and therefore should be registered with regulators for proper oversight.
Celsius used to be based in the United Kingdom, but moved its operations to the U.S. after the U.K.’s Financial Conduct Authority imposed rules that required all crypto asset companies to be registered with it.
Mr. Synnett said that the Caisse is aware of the regulatory pressure on crypto lending companies. But, he said, the pension manager believes blockchain and crypto technology is here to stay, and that the industry needs to be regulated in the right way.
“We made this investment from the perspective that this technology is not going away,” he said. “We are going to keep looking at companies in this space. It’s a good way to diversify ourselves and position ourselves as global investors in the digital asset industry.”
Canadian pension funds have largely appeared to stay clear of major investments in crypto companies, which makes the Caisse’s sizable investment in Celsius an anomaly. The Ontario Municipal Employees Retirement System pension fund (OMERS) has a stake in Purpose Investments, which launched a Bitcoin ETF earlier this year. Its venture capital arm, OMERS Ventures, had previously invested in three other crypto companies – Digital Currency Group, Citizen Hex and OB1 – but has since exited those investments.
With a report from David Milstead
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