Caitlin Long, CEO of Custodia Bank, shares her views on the risks that institutional investors may face in the cryptocurrency sector, particularly in light of a potential bear market.
Shortcomings of Traditional Risk Models
At the Wyoming Blockchain Symposium, Caitlin Long noted that traditional financial institutions lack adequate risk tolerance models to deal with cryptocurrencies. She stated, "Big Finance is here in a big way, and that seems to be driving this cycle."
Liquidity Issues for Financial Institutions
Long mentioned that outdated risk management systems in traditional finance could lead to liquidity crises in the crypto industry. She explained, "Those kinds of fault tolerances are built into the system because of legacy reasons, where systems were not updating in real-time. In crypto, everything has to be real-time, and it's just a different animal."
Expert Opinions on Market Future
Experts warn that the influx of institutional investors could lead to negative consequences during the next bear market. Chris Perkins, president of investment firm CoinFund, pointed out that the mismatch in settlement mechanisms can trigger liquidity issues, which are the root of all financial crises. Some investors believe that inexperienced firms might start dumping crypto assets in a tightening market.
The concerns expressed by Caitlin Long and other experts highlight the importance of adapting traditional financial institutions to the realities of the cryptocurrency market to prevent significant financial repercussions in the future.
