Weak Jobs Data Fuels Bitcoin Rally

The US economy added only 29,000 jobs in September, falling substantially short of the 89,000 expected, while the unemployment rate rose to 4.2%, exceeding the forecasted 4.1%. Combined revisions for prior months erased an additional 60,000 jobs from the record.

Wage growth also showed signs of slowing, with a 0.1% increase monthly and a 3% annual rise. Scott Melker noted that such poor economic data is perceived as beneficial for assets, as it could compel the Federal Reserve to pivot from its rate-hiking cycle to potential cuts.

Scott Melker highlighted a recurring pattern where initial economic data, particularly job reports, undergoes sharp downward revisions after influencing market reactions. He compared this volatility to recent adjustments in Personal Consumption Expenditures (PCE) inflation metrics, which were recalculated to present softer results.

Melker questioned whether the Federal Reserve bases its policy decisions on accurate, consistent data or if models are conveniently adjusted to rationalize specific rate decisions. He suggested that the phenomenon of market-moving data being changed in hindsight raises concerns about either deliberate manipulation or government incompetence.

Bitcoin achieved its strongest quarterly performance in years, even as the bond market experienced its worst quarter. This divergence occurred while the bond market signaled skepticism towards the Federal Reserve, with 10-year Treasury yields climbing above 5%.

Melker contended that current macroeconomic conditions should have exerted negative pressure on Bitcoin. However, the asset continued to perform strongly, appearing to 'defy gravity' and decouple from traditional macroeconomic influences.

Under a new federal securities proposal, state-chartered trust companies may serve as authorized custodians for digital assets held by registered investment advisers and funds, provided the assets remain segregated from the custodian's own holdings. Previously, RIAs faced challenges in engaging deeply with crypto due to a lack of clear guidance on secure custody.

The proposed rules permit state-chartered trust companies to act as authorized crypto custodians, provided that client assets are segregated from the trust company's own holdings. Advisers must also review audited financial statements and internal controls of potential custodians before selection.

The new SEC framework includes provisions for advisers to self-custody crypto assets if no approved external custodian supports the specific digital asset in question. This institutional self-custody is permitted under strict requirements.

These requirements include documented expertise, dual-authorization for transactions, and independent system examinations. Advisers must also conduct quarterly reviews to ascertain if an external custodian has become available for assets they are self-custodying.

A wider range of digital assets can now be managed by RIAs for fees, as the previous reliance on Bitcoin and Ethereum ETFs resulted from the inability to earn management fees on external exchanges like Coinbase. The new direct custody rules enable advisors to expand their offerings beyond existing ETFs.

Advisors can now earn management fees on a broader range of digital assets, accessing the 'long tail' of crypto that was previously inaccessible. Scott Melker views this regulatory shift as the SEC quietly fulfilling the objectives of the Clarity Act without waiting for new legislation.

Melker further predicted that the ongoing tokenization trend would make the crypto industry 'too big to fail' within a few years, underscoring the growing integration of digital assets into the financial system.

Fiserv has launched a 'Rough Rider Coin' for settlement purposes on the Solana blockchain. This token was issued by Versa Bank and is intended to serve a network of over 90 banks and credit unions located in North Dakota.

Over 90 banks in North Dakota are adopting a stablecoin system for interbank settlement, moving away from legacy infrastructure. This new system eliminates reliance on traditional payment networks such as Swift and ACH, offering a more efficient alternative.

Transactions processed through this stablecoin system are settled instantaneously and incur almost zero fees. Scott Melker highlighted that this represents superior infrastructure for banks to conduct transactions.

Melker suggested that this adoption could drive up the price of Solana, as the network burns tokens for gas fees associated with these transactions.

This initiative represents a significant step at the intersection of crypto privacy and artificial intelligence.

Zakappy leverages Zero-Knowledge (ZK) proofs to provide a binary confirmation of funds without exposing entire account balances. This technology enables users to prove they have sufficient funds for a transaction without disclosing sensitive financial information.

Scott Melker noted that this technology has broad implications beyond AI, including applications for credit checks, VPN bandwidth allocation, and autonomous payments between AI agents, enhancing privacy and efficiency in various digital interactions.

Scott Melker reported that although this incident was small in scale compared to other crypto hacks, it was significant enough to warrant reporting. He confirmed that no customer funds were lost during the exploit.

These events underscore the current absence of a Clarity Act, which Scott Melker suggested could have provided regulatory guardrails for such tokenized fundraising efforts.

The advertisements for these dinners now explicitly state that attendees will not receive private access to the former president. Melker noted that the continuation of such events highlights the lack of comprehensive crypto regulation in the US.