A 22-year-old Wall Street veteran who is now the CEO of a crypto bank told us how the 2008 global financial crisis brought her to bitcoin – and where the real value of cryptocurrencies stands today.
- Caitlin Long is the founder of Avanti Bank, a crypto bank serving the digital asset industry.
- A Wall Street veteran for 22 years, she stumbled upon bitcoin while plunging into the 2008 financial crisis.
- Long explains why Wall Street does not matter to the crypto markets and shares the real value of crypto.
- See more stories on the Insider business page.
Now that cryptocurrencies have grown into a trillion dollar force to be reckoned with, Wall Street is eager to join in the action.
But a long time ago, at the dawn of the creation of bitcoin, there were already many bitcoin enthusiasts within the big banks on Wall Street. It may be remembered when Blythe Masters, a JPMorgan banker notorious for creating credit default swaps, left the bank in 2014 to join the still nascent crypto industry.
Caitlin Long, founder and CEO of Avanti Bank, was one of them. In 2012, she was leading Morgan Stanley’s retirement solutions business and was trying to identify the cause of the 2008 global financial crisis.
For her, the dominant explanation that the crisis was caused by the contagion of a credit bubble in the mortgage market was the symptom but not the cause. In her day job, she had made large pension transactions and encountered a number of settlement issues in the traditional financial industry.
In the securities industry, regulation refers to the time interval between the execution of a market order and the moment when a transaction is considered final. Historically, a stock market transaction could take up to five business days to settle, now it takes two business days to settle in e-commerce.
Robinhood CEO Vlad Tenev attributed the January halt to buying shares even on his platform to the long settlement period, which he said “puts investors and the industry at risk. unnecessary “.
Long was initially skeptical of bitcoin, but when she returned to cryptocurrency with these settlement issues in mind, it was a eureka moment.
“All of these settlement issues in the traditional financial services industry could be solved by the blockchain technology underlying bitcoin and by bitcoin itself,” she told Insider in an interview.
By the end of 2014, Morgan Stanley had set up its internal blockchain task force, but there was still little information on bitcoin and even fewer legitimate sites to buy cryptocurrency other than the exchange. of bitcoins based in Tokyo Mt. Gox.
“I wasn’t sophisticated enough at the time to understand the counterparty risk I was taking on leaving my coins in an exchange. And for me it is the cheapest tuition I have ever paid and I lost money at Mt. Gox, she said. “I didn’t put on much, but oh boy, I learned a valuable lesson when Mt. Gox went bankrupt.
The true value of cryptocurrencies
Today, as cryptocurrencies become part of the mainstream consciousness, enthusiasts have set price targets for a single bitcoin ranging from $ 100,000 to $ 1 million.
“Price is the least attractive aspect of these markets,” Long said. “Most speculators, of course, only focus on price and during the bull markets that make the headlines, but the real value is the technology itself and what it can do.”
What bitcoin and its blockchain technology allow users to do is (1) transmit money across the planet at the speed of light and obtain confirmations in minutes, (2) ensure irreversibility in the sense that once a transaction goes on a public blockchain, it cannot be reversed, and (3) it is programmable money and users can write software to program them.
“These three characteristics do not exist in fiat money systems, so these three things are important,” she said. “And that’s what’s going to solve a lot of the settlement issues in traditional financial services.”
Long, who started his career on Wall Street at Salomon Brothers and later held executive positions at Credit Suisse, is all too familiar with the proverbial “market structure debt” within the financial and banking system.
“We’re stuck with this layered market structure where each intermediary has to process transactions in sequence, they can’t do it simultaneously,” she said. “Because of these market structure issues that must delay settlement, it creates counterparty risk and ties up capital. And one of the fundamentals of finance is that if you can turn your capital more frequently, you increase your returns.
Wall Street vs. Decentralized Crypto Markets
Due to the promising blockchain technology and the indisputable performance of the major cryptocurrencies, it is no wonder that institutional investors are increasingly interested in gaining exposure to the asset class.
However, in Long’s opinion, there is a limit to the role Wall Street can play in providing institutional grade infrastructure for the crypto markets.
“The assumption that Wall Street counts for these markets is wrong, because the information frontier in these markets is not in New York. It’s not in Silicon Valley either, ”she said. “These markets are decentralized and Wall Street will never be able to control them. ”
She explains that 75% to 80% of bitcoins and ethers, on average, are held by individuals rather than middlemen, and during bull markets even less crypto is held by middlemen.
“This ultimately means that Wall Street can never get compensation for digital assets,” she said, “because Wall Street can never get hold of a sufficient amount of collateral to create a genuine clearinghouse.
But it creates opportunities for companies and individuals who are “at the frontier of knowledge of these markets”.
For example, Long’s Avanti Bank aims to “serve as a compliant gateway to the US dollar payment system and custodian of digital assets that can meet the highest level of institutional custody standards.” Based in Wyoming, which is increasingly becoming America’s crypto hub for its pro-crypto laws, the bank is a special-purpose depository institution in the state.
“The biggest challenge in 2017 for the industry was that the banks wouldn’t bank the industry and legitimate startups were losing their businesses right and left because the banks wouldn’t bank them,” said Long. “In the United States, if you don’t have a bank account, you are not a legitimate business… the lack of banking services for this industry in 2017 was the biggest problem the industry was asking for help with. and that’s why Wyoming has come forward and provided it.