Custodia CEO Warns Wall Street Unprepared for Next Crypto Downturn

Caitlin Long, CEO of Custodia Bank, issued a stark warning at the Wyoming Blockchain Symposium on August 24, 2025, stating that Wall Street remains unprepared for the next potential downturn in the cryptocurrency market [1]. Despite the growing involvement of traditional financial institutions, Long emphasized that the risk management models used in equities and bonds are ill-suited for the real-time dynamics of digital assets. These models rely on mechanisms like delayed settlement and discount windows, which provide a buffer during periods of high leverage and volatility—features largely absent in the crypto market [1].

Long highlighted that the real-time settlement nature of crypto eliminates the safety net that legacy institutions rely on, increasing the likelihood of liquidity shocks when volatility spikes. This was a key concern, particularly as many large firms continue to underestimate the structural differences between traditional assets and digital currencies [1]. She warned that the next bear market, which she described as inevitable, would serve as a severe stress test for institutions with aggressive Bitcoin and Ethereum holdings.

Chris Perkins, president of CoinFund, supported this view, noting that the mismatch between the 24/7 nature of crypto markets and the slower rhythms of traditional finance could lead to liquidity crises. During a downturn, this discrepancy could result in a cascade of forced selling, amplifying the severity of the market decline [1]. A recent report from venture capital firm Breed further reinforced these concerns, predicting that many newly established Bitcoin treasury companies would fail during the next market correction due to excessive leverage and the risk of a feedback loop in forced liquidations [1].

Long also pointed out that the real-time transparency of crypto markets is a significant advantage, yet the question remains whether traditional institutions—built on slower-moving systems—can adapt to this speed and volatility before the next crisis. The increasing presence of institutional treasuries in digital assets has brought mainstream credibility to the sector but has also introduced new vulnerabilities [1].

The concerns raised by Long and her peers underscore a growing divide between the pace and mechanics of crypto markets and the traditional financial systems attempting to integrate with them. As institutional participation continues to grow, the challenge will be to build frameworks that can handle the unique risks of digital assets without relying on outdated methodologies [1].

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[1] Wall Street Isn't Ready for the Next Crypto Crash, Custodia CEO Warns (https://coindoo.com/wall-street-isnt-ready-for-the-next-crypto-crash-custodia-ceo-warns/)