August 14, 2022

Caitlin Long: I want leverage to disappear from the crypto market

Article reading time:
2 minutes.

Caitlin Long: I want leverage to disappear from the crypto market

The CEO of Custodia Bank believes that regulators should have long ago regulated the crypto industry and shut down capital-borrowing companies.

Caitlin Long stated in an interview that back in 2018, regulators were required to crack down on scammers and approve honest crypto companies and products:

“They [the regulators] didn't give good players the go-ahead they needed to. They also didn't go after the bad guys like they should have."

The head of Custodia Bank noted that GrayscaleBitcoin Trust (GBTC), one of a handful of SEC-approved crypto funds, “brought massive capital to hedge funds, hurt the industry, and destroyed its value.” According to Long, in this situation, due to the imbalance between supply and demand, the price of GBTC was much higher than the market price, as the fund attracted significant leverage.

Retail investors bought GBTC shares, but onlyuntil the SEC has approved competing products. Once competition emerged, funds like GBTC began trading at a discount to their net asset value.

Caitlin Long commented on the Grayscale Bitcoin Trust's decision to file a lawsuit against the SEC after the commission rejected Grayscale's application to convert GBTC to an exchange-traded fund:

“My intuition tells me that there are people in the SEC whowho wish this never happened. Because it took them over six years to green-light a different, competing product. Grayscale has been making money alone in the market for a long time, and many investors have suffered from its actions, as has the entire industry.”

Long believes the industry would benefitif leveraged companies disappeared and the industry was rebuilt around a non-leveraged business model.

Although Long cannot determine exactly what will bethe next step of the SEC, she suggested that the situation in the market is caused by the decisions of the regulatory authorities. She cited the story of loan company Genesis Global Trading, which is suffering a nine-figure loss due to exposure to crypto-currency hedge fund Three Arrows Capital, which is now in danger of collapse.