MONTREAL — Remember October 2021? Halloween was back—albeit tentatively. Justin Trudeau apologized in British Columbia and Justin Bieber got into the Los Angeles weed game. And in Quebec, the Caisse went big on crypto.

“Blockchain technology has the potential to disrupt several sectors of the traditional economy. As digital assets grow in adoption, we intend to capture the right opportunities, while working with our partners towards a regulated industry,” said Alexandre Synnett, executive vice-president and chief technology officer of the Caisse de dépôt et placement du Québec’s technology and venture capital team, announcing the fund’s investment in the New Jersey-based cryptocurrency loan outfit Celsius Network. With Westcap, the pension co-led Celsius’s US$750-million fundraising round, which valued the company at more than $3 billion. The Caisse didn’t announce the size of its investment, but Radio-Canada pegged it at $150 million.

Synnett’s triumphalist spiel hasn’t aged well. Last week, in the midst of a dizzying rout that has seen some cryptocurrencies lose the near entirety of their value, Celsius suspended customer withdrawals and transfers from its accounts. The company’s normally cheeky Twitter stream went silent, its mentions flooded with customers wondering where their money was. This attempt at trying to prevent a digital bank-run underscored exactly what cryptocurrency is: a volatile, unregulated entity built on paranoia, often informed by conspiracy theories and fuelled by libertarianism’s maximalist ethos.

So why on earth was the country’s second-biggest pension fund investing hundreds of millions of dollars in it?

The answer to this question lies in the contradiction of the Caisse itself. Like all pension funds, the Caisse prides itself on being boring. It needs to be; it is responsible for the pensions of more than six million Quebecers. It also bears the political and cultural weight of being an example of the province’s economic might. As such, the vast majority of the nearly $420 billion under its management is in equity markets, private equity, infrastructure and real estate—cruise-ship-steady, Oldsmobile-exciting investments that churn out consistent returns. 

Yet the Caisse is also home to that tech and venture capital team. Helmed by managing director Thomas Birch, the fund has $1.5 billion in capital deployed in more than 20 companies. It has backed the likes of Hopper, Dialogue and AlayaCare—plucky, fast-growth startups whose eventual successes demonstrate the benefits of risk-taking. It’s part of what Birch calls his brand of “conservative venture capitalism,” as he put it oxymoronically in a 2020 interview with me. 

The venture capital types at the Caisse have the advantage of being a $1.5-billion fish in a $420-billion pond. “It’s a lot of money, but in context it’s less than one per cent of the Caisse’s portfolio, and they can do things with that relatively tiny pot that are unconventional,” pension analyst Keith Ambachtsheer told me last week.

The Caisse’s Celsius investment is very much a product of the approach that Birch articulated. The pension fund didn’t bet on individual cryptocurrencies; doing so would expose it to the same market ravages borne by HODL aficionados and investors who scour Discord servers for tips. Rather, it plunked its dough on Celsius, a financial-services outfit complete with loan offerings and savings-like accounts. A bank, essentially, but for crypto—complete with a CFO, Rod Bolger, who left his gig at RBC to take the job in February 2022. Oh, and Celsius’s bank accounts? They offered up to 18.63 per cent returns, paid out weekly. 

On paper, anyway, it was a win-win. Celsius got a whack of working capital while the Caisse snagged a piece of the ever-growing crypto market, thereby nudging the concept of digital-currency-based banking that much closer to mainstream legitimacy. 

A pitch-perfect mix of reason and reasonable risk, in other words—and a relatively novel one, at that. As my colleague Claire Brownell reported in October, the Caisse was one of the few pension funds to invest in crypto-based assets. Even Hydro-Québec, that other bulbous ruby in Quebec’s institutional crown, has pooh-poohed cryptocurrencies, citing their volatility. 

Yet there were several red flags staked around Celsius, most of which were visible to anyone with an internet connection. The month before the Caisse’s Celsius investment, regulators in three U.S. states issued a cease-and-desist order against the company, essentially alleging what appeared obvious: that Celsius was operating like a bank, but without any oversight or consumer protection. 

As Radio-Canada noted in May, one of those three states, New Jersey, was also among the five that investigated Celsius for potentially illegal activities. And as The Times of Israel reported, Celsius chief revenue officer Roni Cohen-Pavon set up a side business with the convicted money launderer Eliran Oved in May 2021. And the guy whom CFO Bolger replaced? His name is Yaron Shalem, and he was arrested in November 2021 on fraud and other charges. (He has maintained his innocence.)

The Caisse, as is its wont, wouldn’t respond to my questions. “We have nothing more or new to add on the subject at this time,” spokesperson Kate Monfette told me via email. What is clear, though, is this: while the Caisse’s investment in Celsius was tiny, compared to its $420 billion in assets, the many, many headlines risk doing considerable reputational damage to the fund. And Celsius investors, the Caisse included, have signalled that there will be no further investment in the company, making its survival that much more daunting. As one source with “knowledge of the discussions between Celsius and its investors” told The Wall Street Journal, “There was more risk in this than fully appreciated.”

Celsius’s high-profile troubles will likely give pause to other institutional and blue-chip investors that had considered following the Caisse’s lead. That could have repercussions for crypto more broadly. Whatever the concerns about Bitcoin and its ilk, these currencies, and the blockchain technology behind them, have important potential applications beyond the fringes of the internet.

“This is going to make the Caisse gun-shy to come back into the space. It’s probably cost us a year or two, maybe even three years, and quite possibly turned off other funds, as well,” as Jaime Leverton, CEO of the Toronto-based Bitcoin mining company Hut 8, told me. 

Yet for pension funds, there is another aspect to consider. Canada faces a gap between existing retirement savings and what our aging population will need in the future that’s estimated to be in the trillions of dollars. “The over-65 population is growing, and the population of 10-and-below isn’t quite shrinking, but it’s not growing, either,” Ambachtsheer pointed out. This is particularly true for the Caisse, which services the country’s oldest population outside the Atlantic provinces. How will Canada’s pension funds try to bridge that gap? We could see more high-risk, potentially high-reward bets like Celsius. 

Martin Patriquin is The Logic’s Quebec correspondent. He joined in 2019 after 10 years as Quebec bureau chief for Maclean’s. A National Magazine Award winner, he has written for The New York Times, The Guardian, The Walrus, Vice, BuzzFeed and The Globe and Mail, among others. He is also a panelist on CBC’s “Power & Politics.” @MartinPatriquin