A Bitcoin Bastion In The Wild West

Eight years ago, Caitlin Long was a card-carrying member of the financial establishment. As head of Morgan Stanley’s pension advisory group, she oversaw the retirement funds for dozens of employers. The dust from the impact of the Great Recession, which wiped out billions of dollars in market value from her clients, was just beginning to settle.

The Harvard Law grad, who cut her teeth doing mergers and acquisition work at Salomon Brothers, tried to understand what went wrong and if anything could be done to prevent another collapse. The problem was, no one really knew what happened. Loans had been made to lenders who loaned to lenders ad nauseum, until the providers of capital, like her own clients, had been lost between the cracks of countless ledgers.

And then, in 2013, she discovered bitcoin, the countercultural currency that relied on a single, shared ledger, called a blockchain, controlled, not by the centralized authorities that failed to prevent the 2008 meltdown, but by a community of coin owners. It appealed to Long’s rebellious, libertarian streak, who bought some bitcoin for $30 from cryptocurrency exchange Mt. Gox.

In spite of bitcoin’s promise to let investors own their own assets, Long trusted the exchange with her password, and when it lost $500 million a year later, some of her investment vanished too. Not long after, a client of hers, a pension fund for 30,000 people had a similar experience. She discovered that several billion dollars in bonds listed on the account statement weren’t available for sale. While Mt. Gox lost its customers’ funds through a hack, the pension fund had loaned out the client securities.

While securities lending is kosher if the client permits it—and shares in the lending fees— in this case the client had explicitly forbidden the practice. “It struck me as very unfair to mom and pop pensioners,” she says. She gave the custodian until the next day to fix the problem, or she would be calling the cops at…

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