The cryptocurrency landscape has undergone a dramatic transformation from its grassroots origins to today’s institutionally-driven market, but this evolution may come with unforeseen consequences. Caitlin Long, CEO of Custodia Bank and former Morgan Stanley executive, has raised critical questions about whether Wall Street titans are adequately prepared for the inevitable crypto winter that historically follows every major bull run.
From Retail Revolution to Institutional Domination
Speaking at the Wyoming Blockchain Symposium 2025, Long highlighted the stark contrast between crypto’s early days and its current state. The initial crypto movement was characterized by retail investors and grassroots participants working tirelessly to expand decentralization and secure foundational networks like Bitcoin and Ethereum. Today’s market tells a different story, with institutional finance taking center stage.
The numbers speak volumes about this institutional takeover. Spot Bitcoin ETFs, launched in early 2024, have become traditional finance’s most successful digital asset venture, accumulating an impressive $53.80 billion in cumulative inflows. Meanwhile, Spot Ethereum ETFs are gaining traction with $8.20 billion in inflows recorded since July alone, demonstrating Wall Street’s growing appetite for cryptocurrency exposure.
The Leverage Problem in Finite Supply Markets
Long’s concerns center on a fundamental mismatch between traditional finance practices and the unique characteristics of digital assets. Unlike conventional markets, Bitcoin and similar cryptocurrencies operate with predetermined, finite supplies that cannot be manipulated or expanded through monetary policy interventions.
“They are perfectly comfortable taking more leverage than you would take with an asset of finite supply because they have all these mechanisms to bail them out in the event that supply for an asset becomes too tight,” Long explained, referencing traditional finance’s reliance on safety nets like discount windows and fault tolerance systems built into securities markets.
Real-Time Settlement Creates New Risks
The cryptocurrency ecosystem operates fundamentally differently from traditional markets, processing transactions in real-time without the external buffers that traditional finance relies upon. This structural difference could expose major financial institutions to unprecedented risks when they attempt to apply conventional leverage and hedging strategies to digital asset markets.
Long’s extensive experience, spanning multiple boom-and-bust cycles since 2012, provides her with unique insight into crypto’s cyclical nature. Despite the current market’s remarkable growth, with the total cryptocurrency market capitalization reaching $3.95 trillion, she maintains that another downturn is inevitable—a reality that may catch traditional players off guard.
Market Dynamics and Warning Signs
Current market conditions reflect both the strength of institutional adoption and underlying vulnerabilities. The crypto market’s recent 0.94% decline, while minor in the context of historical volatility, serves as a reminder of the sector’s inherent unpredictability. Traditional finance firms, accustomed to more stable markets with established intervention mechanisms, may find themselves ill-equipped to navigate the extreme volatility that defines crypto winters.
The institutional rush into cryptocurrency markets has undoubtedly brought legitimacy and substantial capital injection to the sector. However, Long’s warnings suggest that this very success could become a liability when market conditions shift. The derivatives and financial wrappers being constructed around digital assets may create systemic risks that echo traditional finance crises, but without the same regulatory safety nets.
Preparing for the Inevitable Cycle
As Wall Street continues building corporate treasuries around digital assets and expanding derivative products, the question remains whether these institutions understand the unique risks they’re undertaking. Long’s perspective, informed by her background in both traditional and digital finance, suggests that many may be operating with outdated risk models that fail to account for crypto’s distinctive characteristics.
The current bull market, largely driven by institutional participation, has created an environment where traditional finance firms may be overconfident in their ability to manage digital asset exposure. However, the finite supply nature of assets like Bitcoin means that conventional bailout mechanisms and liquidity provision strategies may prove ineffective during periods of severe market stress.
Long’s warnings come at a critical juncture for the cryptocurrency industry. While institutional adoption has brought unprecedented growth and mainstream acceptance, it has also introduced new systemic risks that the market has yet to fully test. As the crypto ecosystem continues evolving, the readiness of traditional finance giants to weather their first major crypto winter remains an open question—one whose answer may determine the sector’s long-term stability and institutional confidence.