Custodia CEO Warns Traditional Finance Firms Face First Crypto Winter Challenge
According to Cointelegraph, Custodia Bank CEO Caitlin Long warned traditional finance firms about potential struggles during their first crypto winter. Long made these comments at the Wyoming Blockchain Symposium on Friday when speaking to CNBC.
Long stated that institutional investors from traditional finance lack updated risk tolerance models for cryptocurrency markets. "Big Finance is here in a big way, and that seems to be driving this cycle," Long told the network. She expressed concerns about how these financial titans will react when the next bear market arrives.
The Custodia CEO explained that legacy institutions rely heavily on built-in fault tolerances like discount windows and other mechanisms. These safeguards allow traditional financial systems to operate with higher leverage because settlement does not occur in real-time. However, crypto markets operate differently with instant settlement requirements.
Risk Management Systems Face Real-Time Settlement Challenge
Long identified a critical mismatch between traditional financial systems and blockchain protocols that settle instantaneously. She warned this difference could create liquidity problems for institutions applying conventional strategies to crypto markets.
"Those kinds of fault tolerances are built into the system because of legacy reasons, where systems were not updating in real-time," Long explained. "In crypto, everything has to be real-time, and it's just a different animal."
Chris Perkins, president of investment firm CoinFund, shared similar concerns with Cointelegraph. Perkins stated that having one ecosystem managing risk in real-time while another takes weekends and holidays off creates systemic risk. This settlement mechanism mismatch can trigger liquidity issues that form the root of financial crises.
Recent analysis from Coinbase Institutional supports these warnings. The exchange's April 2025 monthly outlook reported that the total crypto market cap declined 41% from December 2024 highs to $950 billion. Their research noted that both Bitcoin and their COIN50 index broke below 200-day moving averages, potentially signaling bear market conditions.
We previously covered how Fed rate cut discussions could signal dangerous market euphoria, with social media chatter reaching 11-month highs according to sentiment analysis platforms.
Industry-Wide Implications for Institutional Crypto Adoption
The warnings come as traditional finance continues expanding crypto exposure through exchange-traded funds and corporate treasury positions. According to BeInCrypto, institutional Bitcoin holdings reached significant levels by 2025, with BlackRock's Bitcoin Trust exceeding $85 billion in assets under management.
However, venture capital firm Breed released research in June concluding that most Bitcoin treasury companies would not survive the next market downturn. The firm warned that overleveraging and declining asset prices could create cycles forcing these companies to dump holdings and depress crypto markets further.
Dean Chen, an analyst at Bitunix, told BeInCrypto that Bitcoin-focused companies face $12.8 billion in debt maturities by 2028. This debt wall could pressure firms like Marathon Digital and MicroStrategy if Bitcoin prices decline substantially.
Long noted that while institutional involvement has brought credibility and capital to crypto markets, their traditional risk management approaches may prove inadequate. She emphasized that assets with finite supply like Bitcoin require different strategies than conventional financial products.
John Glover, Chief Information Officer at Ledn, acknowledged that institutional participation has added stability to Bitcoin in recent years. However, he stressed that a potential bear market would test institutional conviction in cryptocurrency as an asset class. The challenge lies in whether these firms can maintain their crypto positions during extended downturns without traditional bailout mechanisms available.
