Caitlin Long, CEO of Custodia Bank, has recently sounded the alarm regarding the potential challenges facing traditional finance (TradFi) firms in the context of an impending crypto market downturn. As we progress through 2025, Long emphasizes that the discrepancies between legacy financial systems and blockchain protocols, which facilitate real-time settlements, could significantly impact these institutions. According to her insights shared during the Wyoming Blockchain Symposium, institutional investors from traditional finance lack the updated risk tolerance models necessary to navigate the complexities of the cryptocurrency landscape.
“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 stated, highlighting the increasing presence of institutional players in the crypto market. However, she cautioned that the traditional financial institutions are accustomed to operating with substantial leverage, relying on built-in fail-safes such as discount windows and other fault tolerances. In contrast, these advantages are nonexistent in the crypto realm, where transactions settle instantly.
Long expressed her concerns about a potential liquidity crunch for TradFi firms, stating,
“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.”
In this evolving financial landscape, institutional investors, including crypto treasury companies, have emerged as a significant force. While some market observers regard this as a positive trend that fosters greater adoption of cryptocurrencies, others warn that overleveraged and inexperienced firms might lead to a market sell-off during the next crypto bear market. This scenario could result in a contagion effect, permeating throughout the broader financial system.
Chris Perkins, president of investment firm CoinFund, articulated a crucial point regarding systemic risks, stating,
“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.”
This fundamental mismatch in settlement mechanisms may provoke liquidity challenges, which are often at the heart of financial crises. A report released in June 2025 by venture capital firm Breed underscored the precarious position of many new Bitcoin (BTC) treasury companies, predicting that they might not withstand the next market downturn. The report cautioned that overleveraging, coupled with declining asset prices, could create a vicious cycle, compelling these firms to liquidate their assets, which would further depress the crypto market.
As we look ahead in 2025, it is clear that the intersection of traditional finance and cryptocurrency poses both opportunities and risks. The ongoing evolution of financial systems necessitates that institutions adapt and reassess their strategies to navigate this complex environment effectively. Custodia Bank and its leadership remain at the forefront of this dialogue, advocating for responsible practices and highlighting the need for updated risk management frameworks within the evolving financial landscape.
For further insights on this topic and related developments in the cryptocurrency space, visit Cointelegraph.
