CEO of Custodia Bank warns of liquidity risks due to the differences between traditional finance systems and blockchain.
The asynchrony in real-time data updates between traditional financial systems and blockchain could cause a liquidity crisis for large financial corporations in the future.
MAIN CONTENT
The difference in real-time updating mechanisms between traditional finance and blockchain.
Liquidity crisis risks for traditional financial businesses when a bear market occurs.
The long experience of the CEO of Custodia Bank warns about the cryptocurrency market cycle.
What is the main difference between traditional financial systems and blockchain?
Unlike traditional financial systems that operate based on slow processing mechanisms and error control, blockchain requires real-time transaction processing, creating a fundamental difference between the two models.
In traditional finance, error-maintenance mechanisms are integrated to ensure stability when data cannot be continuously updated. In contrast, cryptocurrency requires instantaneous information updates, emphasizing the speed and transparency of blockchain. This difference can make traditional financial businesses struggle to adapt quickly.
Why could this difference lead to a liquidity crisis?
The inability of traditional financial systems to continuously update easily creates delays in transaction processing, increasing the risk of liquidity imbalance when the market experiences significant fluctuations, especially during bear market periods.
When the market value of cryptocurrency drops significantly, traditional financial companies face large liquidity pressures due to the asynchronous nature of the updating and transaction processing systems. This can slow down responses and cause severe financial damage if timely adjustments or adaptations are not made.
"Because the traditional system cannot update in real-time, error-maintenance mechanisms are built into the system. In the cryptocurrency world, everything must run instantaneously; it's a completely different playing field. I worry about how large financial corporations will cope when the bear market returns. I know some people are optimistic that the bear market will not recur, but I have been in the industry since 2012, so I know it will happen again."
– Caitlin Long, CEO of Custodia Bank, Blockchain Seminar in Wyoming, August 2023
What are Caitlin Long's experiences and perspectives on the cryptocurrency market cycle?
Caitlin Long has over a decade of experience in the cryptocurrency industry, through which she understands the strong volatility of this market as well as its impacts on traditional financial systems.
She emphasizes the inevitability of the bear market cycle in cryptocurrency, countering the optimistic view that the bear market will not return. A practical and experience-based perspective will help investors and financial businesses be better prepared for future fluctuations.
Frequently Asked Questions
Why can't traditional financial systems update transactions in real-time like blockchain?
Traditional financial systems are designed with error processing and control mechanisms, creating delays to ensure data stability and safety, unlike blockchain, which requires instant updates.
When does a liquidity crisis occur in traditional finance due to blockchain?
When the cryptocurrency market fluctuates sharply, the asynchronous updating of quick data can cause traditional financial institutions to lack liquidity due to slow responses to asset value changes.
What does Caitlin Long predict about the future of the cryptocurrency market?
She asserts that the cryptocurrency bear market will return, and this is an inevitable part based on her over 10 years of experience in the industry.
How can traditional financial businesses adapt to blockchain?
Businesses need to invest in technology that supports real-time updates and build flexible control mechanisms to mitigate risks from this asynchrony.
Why is understanding blockchain important for financial organizations?
Knowledge of blockchain helps organizations accurately assess risk levels and leverage innovation opportunities to ensure safety and efficiency when integrating new technologies.
Source: https://tintucbitcoin.com/ceo-custodia-canh-bao-khung-hoang-thanh-khoan/
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