Custodia Bank CEO Caitlin Long warns that outdated banking systems may collapse in next crypto volatility without urgent risk model upgrades.
Caitlin Long, the CEO of Custodia Bank, has raised serious concerns about traditional finance’s readiness for the next crypto market downturn. Speaking at the Wyoming Blockchain Symposium in August 2025, Long stated that even big financial institutions do not yet have a complete grasp of how different the crypto world is. She cautioned that their old systems and risk models could collapse should the crypto market collapse again.
Caitlin Long Warns Traditional Banks of Crypto Risk Mismanagement
Long described that most of the traditional banks have outdated practices of managing risk. Such banks use tools such as discount windows and other reserve facilities to cope with financial pressure. Crypto is much different. It works 24 hours and 7 days a week, and it is not possible to take time off or have a backup system.
On this basis, Long thinks that conventional finance is at risk. She stated that it is dangerous to employ the same tactics used in the traditional markets in the new crypto world. The techniques might cause massive liquidity issues during a crash. Banks might not be in a position to sell their assets quickly and this could do even greater harm.
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Furthermore, other analysts have this fear. They fear that a contagion effect can be generated by large financial institutions that get into crypto without careful preparation. This implies that in case one of the big players fails, then it may drag others down with it. This occurred in 2022, when companies such as FTX fell and generated a crisis in the rest of the market.
Long also cited previous examples to prove her point. She cited the failure of such banks as Silvergate and Signature, which were closely connected with the crypto market. Such failures, she says, demonstrate that old-style risk models are ineffective in this new environment. Otherwise, banks would do the same errors again.
Big Banks Entering Crypto Face Systemic Risk Gaps
Another problem is that traditional finance is used to take breaks. Their systems will fail at night, on weekends, or during holidays. Crypto, however, never sleeps. It moves constantly all the time. Long said that this difference matters since it influences the way risks are managed. In case markets crash at night or over the weekend, conventional banks may not react quickly.
Currently, additional large financial institutions are moving into the crypto market. Numerous investors have explored investments in spot Bitcoin ETFs and other cryptocurrency investments. On the one hand, this attracts more finance and credibility to the cryptocurrency market; on the other hand, it raises the stakes. These companies might not be prepared for the pace and volatility of crypto, which may exacerbate a downturn.
Therefore, Long is demanding action. She suggests that traditional financial institutions should upgrade their systems and develop new risk models that align with the nature of crypto. Such changes are not merely useful; they are essential. In their absence, the next crypto crash can be even more harmful.
To sum up, the popularization of crypto in the world of big finance is promising, yet dangerous. Caitlin Long advises that the old methods of money management might not be applicable in the new digital world. Conventional banks will have to change and they will have to change fast to prevent the disaster.
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