Key Takeaways
- Long explained that the structure of crypto markets, which operate on real-time settlement, differs fundamentally from traditional systems that rely on delayed settlement windows.
- She cautioned that the mismatch between the two could expose firms that have not adjusted their risk frameworks to sudden liquidity pressures once market conditions turn downward.
In a major development, Custodia Bank CEO Caitlin Long highlighted that institutional investors from the traditional finance(TradFi) world lack the updated risk tolerance models to deal with crypto and may face trouble during the next bear market, Custodia Bank CEO Caitlin Long said. She made the remark during an interview with CNBC.
Long explained that the structure of crypto markets, which operate on real-time settlement, differs fundamentally from traditional systems that rely on delayed settlement windows. She cautioned that the mismatch between the two-legacy financial systems and blockchain protocols- could expose firms that have not adjusted their risk frameworks to sudden liquidity pressures once market conditions turn downward.
Her remarks come as she observes what she described as a shift in attitude among U.S. regulators. Long pointed to the Federal Reserve’s decision to bring digital asset activities under its general supervisory umbrella rather than classifying them separately as “novel activities.” She characterized this as a sign that regulators are beginning to normalize crypto within existing financial oversight.
“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,” she said.
On the legislative front, Long highlighted the GENIUS Act, which recently became law as the first federal framework for stablecoins. She noted that Custodia Bank issued a tokenised dollar instrument under regulatory approval in 2020 and is now working with Vantage Bank to make tokenised deposits more widely accessible. According to Long, the structure of the project allows other banks to license the model.
At the same time, Long noted that unresolved barriers remain. Custodia, along with other banks active in digital assets, has yet to secure access to a Federal Reserve master account. Without it, institutions must continue to rely on intermediaries for clearing and settlement, limiting direct participation in the payment system.
Long further stressed that while regulatory tone has shifted, structural risks remain significant. The resilience of traditional finance firms in crypto, she said, will be tested when the next market downturn arrives.
