Canadian pensions’ crypto concerns may be misplaced | Alternatives

Global pension funds such as Ontario Teachers’ Pension Plan and Caisse de dépôt et placement du Québec (CDPQ) are turning away from cryptocurrency investments after recent high-profile failures in the sector, yet some experts believe the problem is about a lack of due diligence when making bets in a nascent industry.

“These were traditional private equity investments, like any other that the funds would’ve made during the dot com boom, or during any other stage of technology innovation. They bet on the wrong horses,” according to Stefan Rust, founder of Truflation and former chief executive officer of Bitcoin.com.

Experts in the crypto industry remain convinced that these failed investments by two of Canada’s most high-profile pension managers had next to nothing to do with cryptocurrency assets per se and was more the result of a failure to perform appropriate due diligence — an accusation both CDPQ and Ontario Teachers’ continue to deny.

“If CDPQ and Ontario Teachers’ had done their appropriate due diligence, they would have very quickly recognised that there were huge red flags with both Celsius and FTX, like “both these exchanges using ‘Quickbooks’ to do their accounting on billions and billions of dollars,” Rust told AsianInvestor.

CORRUPTION, NOT CRYPTO

Ontario Teachers’ recently said it will avoid the cryptocurrency sector in the foreseeable future after writing off a $95 million investment in the failed digital currency exchange FTX, according to a Financial Times report.

The $190 billion Canadian pension fund was among a large group of blue-chip investors, including Singaporean state-owned investor Temasek, who backed the fast-rising FTX. However, the fund wrote off its investment in November 2022, following the exchange’s dramatic collapse.

Sam Bankman-Fried, FTX’s high-profile founder, is currently on trial for fraud.

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Meanwhile, Caisse de dépôt et placement du Québec (CDPQ), Canada’s second-largest pension fund manager with $300 billion in AUM, wrote off a $150 million investment in crypto lending platform Celsius, after its collapse earlier last year. CDPQ has since said the Celsius investment marked the end of its foray into crypto.

The opinions of these Canadian funds towards the crypto sector have been affected by corrupt individuals, not the technology, according to Rust.

“True cryptocurrencies are all on chain (blockchain) — they are transparent, accountable and governed by smart contracts which are audited and, in some cases, can also be insured,” he said.

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The failed investments into FTX and Celsius had nothing to do with cryptocurrencies other than the fact that the businesses were participating in the crypto industry, said Rust.

Also read: Opinion: Why FTX collapse might be the end of the beginning for crypto

“There was no decentralised finance and no on-chain activity,” he said. “These were just standard banking entities using far too much leverage and working with cryptocurrency.”

BITCOIN IS BEST PERFORMER

For most, the crypto winter began in May 2022 following the $40 billion collapse of the Terra Luna stablecoin, which triggered a domino effect across the deeply interconnected crypto industry, and resulted in a $1.3 trillion wipeout of the sector’s market capitalisation.

Despite closing last year about 65% lower at $16,500, Bitcoin appears to have had an early thaw and the original cryptocurrency currently sits atop the leaderboard in the first quarter for being the best-performing asset class by a wide margin.

Also read: Crunch time for crypto as investors assess SVB damage

With a 72% gain, Bitcoin closed out its best quarter in nearly two years, according to Bloomberg data.

Bitcoin is hovering around $28,000 at the time of publication following its epic surge, but is still far below its all-time high of $68,789 in November 2021.

“In my mind there is no doubt that markets will eventually return to all-time highs and even continue further,” Justin d’Anethan, institutional sales director at Amber Group told AsianInvestor.

Justin d’Anethan,
Amber Group

Standard Chartered also said on Monday that it firmly believes the “crypto winter” is over, and even predicted that Bitcoin could reach $100,000 by the end of 2024.

Bitcoin could gain from factors including the recent turmoil in the banking sector, a stabilisation of risk assets as the US Federal Reserve ends its interest rate-hiking cycle and improved profitability of crypto mining, Standard Chartered’s head of digital assets research Geoff Kendrick said in a recent note.

D’Anethan agrees that these factors along with geopolitical issues plaguing the world and countries looking to diversify currency exposure in an increasingly global and connected world will move financial markets moving towards more blockchain-based solutions.

“If or when that happens, it means more understanding of the unique profile and value that Bitcoin offers as an alternative mode of transfer and ownership, and so there will be more fresh capital coming in and higher prices,” said d’Anethan.

“Beyond Bitcoin, other cryptocurrencies are poised to benefit from more crypto acceptance but the competition amongst altcoins remains fierce and uncertain.”