According to Caitlin Long, CEO of Custodia Bank, institutional investors from the traditional financial world lack an updated risk tolerance model to address crypto, and could face trouble in the next bear market.
“Big Finance is a big way here and it seems to be driving this cycle, and I think it will continue to drive this cycle,” Long told CNBC at the Wyoming Blockchain Symposium on Friday.
Long said legacy financial institutions can comfortably incorporate a large amount of leverage due to the failsafe built into the system, such as discount windows and other “fault tolerance.”
However, she warned that these benefits will disappear in ciphers where settlements occur in real time. The CEO said that discrepancies between crypto and legacy systems can create liquidity crunches for these institutions.
“These types of fault tolerance are built into the system for legacy reasons. The system is not updated in real time. In ciphers, everything must be real-time, and it’s just a different animal.
I’m worried about how those financial giants will react when the bear market inevitably comes back. I’m optimistic and I know people who think it’s never coming again. I’ve been going like Zhou since 2012, so I know it’s coming again,” she added.
Institutional investors, including cryptocurrency companies, are the most prominent features of the current market cycle.
Some investors see this as an aggressive development driving positive adoption, while others warn that non-overloaded companies will dump crypto in the next crypto bare market, causing contagion to spread across the financial system.
Related: New Crypto Advocacy Group debuts at Wyoming Summit
Custodia CEO has wide concerns with industry executives and analysts
“The biggest systematic risk going forward is the fact that there is an ecosystem that manages risk and rebalance in real time, and another ecosystem that takes weekends, evenings and holidays.
https://www.youtube.com/watch?v=zad4fima-oq
This discrepancy between the reconciliation mechanisms can cause liquidity issues, which are the root of all financial crises, Perkins told the Cointelegraph.
In June, Venture Capital (VC) Firm Breed released a report, concluding that most new Bitcoin (BTC) financing companies cannot withstand the next market recession.
VC companies warned that sophistication and lower asset prices would cause these Treasury ministries to throw their assets into the market, creating a vicious cycle that would make the crypto market even more depressing.
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