Institutional Investors Face Challenges in the Crypto Market, Warns Custodia CEO
According to Cointelegraph, institutional investors from traditional finance may face difficulties in the crypto market due to outdated risk tolerance models, as highlighted by Custodia Bank CEO Caitlin Long. Speaking at the Wyoming Blockchain Symposium, Long emphasized that although large finance is significantly influencing the current market cycle, the inherent differences between traditional and crypto systems could pose challenges during a bear market.
Long explained that traditional financial institutions are accustomed to leveraging large amounts due to built-in safeguards like discount windows. However, these advantages do not exist in the crypto space, where real-time settlement is required. This discrepancy could lead to liquidity problems for these institutions. Long expressed her concern about how these financial giants will respond when the next bear market arrives, noting that some remain optimistic about avoiding such downturns. Having been involved in the industry since 2012, Long is confident that another bear market is inevitable.
The current market cycle is characterized by the significant presence of institutional investors, including crypto treasury firms. While some see this as a positive step towards broader adoption, others warn that over-leveraged and inexperienced firms could offload crypto assets during a bear market, potentially causing a contagion effect throughout the financial system. Chris Perkins, president of the investment firm CoinFund, expressed these concerns, pointing out the systemic risk posed by the discrepancy between real-time risk management in crypto and the slower processes of the traditional financial system.
In June, the venture capital firm Breed published a report warning that most new Bitcoin treasury startups may not withstand the upcoming market downturn. The report highlighted that over-leverage and falling asset prices could create a vicious cycle, forcing these companies to sell their assets, further depressing the crypto market. This scenario underscores the need for updated risk management strategies to navigate the unique challenges of the crypto landscape.