The Ontario Teacher’s Pension Plan (OTPP) is facing a class action lawsuit for allegedly failing to do its due diligence before investing in now-bankrupt cryptocurrency exchange company FTX. In a statement of claim filed late last month, a representative plaintiff proposes to act on behalf of all 340,000 current and retired teachers covered by the plan and is asking the pension board to reimburse the fund for the more than $130 million lost when FTX went bankrupt.
A survey performed by financial consulting company KPMG in Canada found institutional investors – like pension funds or insurance companies – are increasingly including cryptocurrencies in their investment portfolios. In the past, these kinds of digital assets have increased in value quickly, creating the potential for high returns on investments but a lack of regulations leaves investors vulnerable.
The Financial Consumer Agency of Canada (FCAC) said cryptocurrency investors may not get the same level of disclosure on important information from the trading company. As well, deposits for cryptocurrency investments are not insured like other Canadian deposits. For workers, the increasing institutional trust in cryptocurrency investments could represent increasing vulnerabilities in their pensions.
The Global Committee on Workers’ Capital and the Canadian Labour Congress both declined to comment on pension boards’ investments in cryptocurrencies, with the latter saying the situation is “tricky.”
FCAC made a post to their website in December calling crypto assets “risky” and encouraging Canadians to educate themselves before investing.
“Unlike the Canadian dollar, crypto assets are not legal tender in Canada. A government or central bank doesn’t issue or oversee them,” the agency’s website reads. “Crypto assets are also quickly evolving, unstable and complex.”
Proponents of cryptocurrency say it is democratizing finance by bringing in new players to compete with large financial institutions. An op-ed by a Cornell economics and trade policy professor Eswar Prasad, on the other hand, argues crypto can actually exacerbate inequalities.
“Unequal financial literacy and digital access might result in sophisticated investors garnering the benefits while the less well off, dazzled by new technologies, take on risks they do not fully comprehend,” Prasad wrote. “Computer algorithms could worsen entrenched racial and other biases in credit scoring and financial decisions, rather than reducing them.”
Crypto also has a significant environmental impact. Erran Carmel, professor at the Kogod School of Business at American University in Washington DC, noted that cryptocurrency is created through “mining” which requires a large amount of computational power. As such, cryptocurrencies have contributed to environmental degradation. Carmel pointed to the crypto giant Bitcoin as one of the most notable environmental offenders.
“Investors, I believe, have two clear ethical choices on cryptocurrency: They can divest from Bitcoin or, at the very least, invest in other cryptocurrencies that minimize harms, especially harms that jeopardize the environment,” Carmel wrote. Support rabble today!
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In a report released last week, the Office of the Superintendent of Financial Institutions released guidelines for federally regulated institutions with exposure to crypto assets. The report included a recommendation for bodies to create a plan to understand and mitigate risks associated with cryptocurrency investments.
