Legacy finance risk models clash with blockchain’s real-time settlement, says Caitlin Long
Traditional finance institutions diving into crypto markets could face significant challenges during the next downturn, according to Custodia Bank CEO Caitlin Long. Speaking at the Wyoming Blockchain Symposium, Long warned that risk models used by major financial institutions are not designed for real-time blockchain settlement, which could create severe liquidity stress in a bear market.
“Big Finance is here in a big way, and that seems to be driving this cycle. I suspect it will continue to drive this cycle,” Long told CNBC.
Legacy Systems vs. Real-Time Crypto Settlement
Long explained that traditional banking relies on fail-safes—such as discount windows and built-in fault tolerances—that allow firms to manage leverage over extended settlement periods. In crypto, those buffers don’t exist, because transactions settle instantly.
“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,” Long said.
She warned that this structural mismatch could become a major problem when the next bear market arrives. “I do worry how those titans of finance will react when the bear market inevitably comes again. I know some who are optimistic and think it won’t come again. I’ve been around since 2012, so I know it’s coming again,” she added.
Systemic Risk Concerns Grow
Institutional investors—including crypto treasury firms and major TradFi players—have been a defining feature of the current market cycle. While some view this as a positive sign of mainstream adoption, others caution that overleveraged firms could trigger systemic risk if they unwind positions during a downturn.
Chris Perkins, president of CoinFund, echoed Long’s concerns: “The biggest systemic risk going forward is the fact that you have one ecosystem that manages risk and rebalances in real-time and another ecosystem that takes weekends, nights, and holidays off.”
With billions in institutional capital now tied to digital assets, the question remains whether legacy firms are ready for a market that never closes—and whether traditional risk frameworks can withstand the speed and volatility of crypto markets.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.