Custodia Bank CEO Warns TradFi Firms Could Struggle in Next Crypto Downturn
Custodia Bank CEO Caitlin Long warned that many traditional finance (TradFi) firms may be ill-prepared for the next crypto bear market because their risk models and operational assumptions were built for legacy systems that do not settle in real time.
Long told reporters at the Wyoming Blockchain Symposium that large financial institutions are accustomed to relying on built-in fault tolerances — such as discount windows and other backstops — that allow them to take on substantial leverage. Those protections, she said, largely disappear in crypto markets, where settlements and risk rebalancing happen instantly.
That mismatch between a TradFi world that accepts delays and a crypto ecosystem that demands real-time settlement creates the potential for liquidity stress, Long argued. She said she expects a bear market to return at some point and expressed concern about how major financial players will react when it does.
Other industry voices echoed the warning. Chris Perkins, president of CoinFund, noted the systemic risk created when one set of institutions manages risk and rebalances continuously while another operates with periodic cutoffs for nights, weekends and holidays — a divergence that can amplify liquidity squeezes.
Venture firm research has also flagged potential vulnerabilities: a recent report from a VC group concluded that many new Bitcoin treasury companies, particularly those that are overleveraged or inexperienced, may not survive the next downturn. If those firms are forced to liquidate large positions, it could deepen and prolong market weakness.
Long’s comments underscore a broader industry debate about whether the influx of traditional institutional capital into crypto increases resilience through adoption, or raises the odds of contagion if those entrants lack crypto-native risk frameworks.
