The SEC Proposed Letting Investment Advisers Use State Trust Companies as Crypto Custodians

In Today's Note

• The S&P 500 rose 0.19% and the Nasdaq-100 0.31% for their first green day of the week as the 10-year Treasury yield eased to around 5.23% from a 5.34% high after Fed Vice Chair Jefferson said policymakers may need more time, cutting the odds of an October hike to 26% from 71% at the start of the week, while BTC rallied to almost $87K from closer to $83K.
• The SEC proposed a crypto custody framework that would let advisers and funds use state trust companies as custodians, while Evernorth shareholders approved its merger with Armada Acquisition Corp. II ahead of a planned Nasdaq listing as XRPN on Oct. 8, and Robinhood Wallet integrated Arcus' RFQ routing for more than 190 stock tokens.

Market Snapshot: Overnight Moves

Macro & Markets

• An easing in the selloff of longer dated Treasuries helped drive a rebound in risk sentiment and overshadowed concerns of higher oil prices.
• 10-year Treasury yields fell from their 2002 level highs of 5.34% to an intraday low of 5.21% yesterday and currently trade around 5.23%.
• BTC rallied to almost $87K after beginning yesterday’s session closer to $83K, while US equities saw their first green day all week.
• The S&P 500 ended up 0.19% coinciding with a slightly larger 0.31% gain in the Nasdaq-100, while the Philadelphia Semiconductor gauge rallied 1.59% and is up 2% over the week.

• Partly responsible for the rebound in US long-end Treasuries were comments from Philip Jefferson, Vice Chair of the Federal Reserve.
• At an event at the University of Virginia, Jefferson said "Since our September meeting, yields across the term structure have increased further, a sign that investors are reassessing the evolving macroeconomic landscape. My colleagues and I will need to come to our own judgment, which may take more time.”
• Jefferson added that taking time will give the chance to review more data and “With more data in hand, such trends [in inflation] may lend themselves to better discernment, as may the appropriate stance of monetary policy.
• The Vice Chair also noted that the US economy is currently being hit by a cascade of shocks at once, rising energy prices, the surging AI build-out, and changes to trade policy, but the Fed does not have the "luxury" of considering each shock in isolation.

• His comments follow messaging earlier this week from another influential member of the committee, President of the New York Fed, John Williams.
• On Tuesday, Williams said "There is no need for urgency" on changing the current setting of monetary policy and that “One further upward adjustment" may be appropriate late in the year, indirectly referring to the December meeting.
• Since those comments from both officials, the probability of an October rate hike has slumped all the way down from 71% at the start of the week to 26% now.

• Not all members of the committee agree on the view that the Fed can wait before making its next move however.
• Dallas Fed President Lorie Logan said yesterday that the central bank will need to raise rates by at least another 50bps to turn monetary policy "modestly restrictive”.
• In remarks at the regional Fed bank’s headquarters, Logan said that the move in September was "an important first step" but “Still, I currently estimate the target range needs to rise an additional 50 basis points or more to appropriately balance the outlook and risks for our dual mandate goals" and that “A few additional increases in the target range would undo the FOMC's risk management cuts from last fall".
• Logan did concede however that some models suggest part of the rise in government bond yields could be driven by higher term premiums, which "can slow the economy, reducing the need to tighten monetary policy."

• The easing in longer-dated government bond yields in the US occurred against a backdrop of higher yields across the rest of the world.
• In the UK, 30-year gilt yields rose past 6% on Thursday, while concerns around France’s fiscal and political situation (public debt is at a record high of 119% of gross domestic product) helped push the yield on French 10-year government bonds (OATs) to their highest level since 2002.

• President Trump told Time Magazine in an interview that it could be “possible” that the US resumes its military bombing campaign against Iran after the US November mid-term elections.
• Last week Trump rejected a recent proposal from Iran to reopen the Strait of Hormuz and claimed that Tehran was stalling on diplomatic talks until after the elections.
• Oil prices have steadied around $100 a barrel after reports that the Pentagon is deploying an additional aircraft carrier to the Middle East as well as another 10,000 sailors and Marines.

DeFi / Web3 / Altcoins / Crypto

• The SEC has proposed a new crypto custody framework that would give investment advisers and regulated funds more flexibility in how they hold digital assets.
• The proposal would allow advisers and funds to use state trust companies as crypto custodians, expanding the range of institutions that can hold assets on behalf of clients.
• It would also permit advisers to “self-custody” crypto in limited cases, including when no permitted third-party custodian is available.
• In this context, self-custody does not mean individual investors holding their own private keys; it means the investment adviser itself acting as custodian for client or fund assets.
• The framework is intended to address gaps in existing custody rules, which were largely written before crypto markets developed.
• It could make it easier for asset managers, hedge funds and regulated funds to hold BTC and other digital assets directly rather than relying solely on ETFs or other intermediaries.
• The proposal remains subject to the SEC rulemaking process and is not yet final.
• It is part of the SEC’s broader push to establish crypto rules under its existing authority following the Clarity Act’s failure to advance in the Senate.

• The Hyperliquid Policy Center and Circle are both pushing for changes to EU crypto regulation as part of the European Commission’s MiCA review.
• The Hyperliquid-funded policy group argues that crypto perpetual futures should be regulated under MiFID II, the EU’s existing framework for financial instruments, rather than under MiCA.
• Its position is that regulation should follow a product’s economic structure, not the fact that it trades onchain.
• HPC also wants perpetual futures kept separate from CFDs, arguing that perps traded on an order book differ because the venue is not necessarily the counterparty to the trade.
• The group asked regulators to require clearer disclosure of funding rates, maintenance margins and liquidation thresholds, while confirming that putting a regulated product on a public blockchain does not by itself change its legal classification.
• Circle, meanwhile, is focusing on MiCA’s stablecoin rules.
• The company wants the EU to preserve multi-issuance structures for stablecoins and remove MiCA’s requirement that 30% to 60% of reserves be held as bank deposits.
• Circle argues that the current framework may make it harder for EU-regulated stablecoins to compete globally.
• The MiCA review consultation closed on Sept. 30, with other firms and industry groups also submitting responses.

• Evernorth shareholders have approved the company’s merger with Armada Acquisition Corp. II, clearing a key step toward its Nasdaq listing.
• The transaction is expected to raise about $300M in gross cash proceeds, while investors are also contributing XRP directly to Evernorth.
• At closing, the company expects to hold roughly 473M XRP.
• Evernorth currently holds about 347M XRP, worth around $512M at the article’s cited price.
• The deal is expected to close on Oct. 7, with the combined company scheduled to begin trading on Nasdaq under the ticker XRPN on Oct. 8.
• Evernorth is positioning itself as a regulated public-market vehicle for XRP exposure, alongside spot XRP ETFs.
• Its investors include Arrington Capital, SBI Group, Ripple, Pantera Capital, Kraken and GSR.
• The broader transaction was initially structured as a roughly $1B SPAC deal.

• Robinhood Wallet has integrated Arcus’ API, adding another routing option for stock token swaps.
• Eligible users in supported jurisdictions can now access Arcus’ liquidity and execution infrastructure for more than 190 stock tokens through the wallet.
• Arcus uses a request-for-quote, or RFQ, model, where professional market makers compete to provide prices for each swap rather than trades relying on a single liquidity pool.
• The platform was built by the team behind dYdX and launched on Robinhood Chain in July with more than 90 stock tokens.
• Its offering has since expanded to more than 190 stock tokens, while perpetual markets remain in beta.
• Robinhood Wallet users whose trades are routed through Arcus may also qualify for Arcus Points.
• Arcus plans to make limit orders available through Robinhood Wallet’s dapp browser.
• Arcus says it has processed more than $5B in cumulative trading volume, with over 15,000 unique traders and more than $28M in TVL.

This Week's Calendar

Charts of the Day

Figure 1. Block Scholes BTC Risk-Appetite Index (white, left-hand axis) and BTC spot price (orange, right-hand axis).

Figure 2. Block Scholes ETH Risk-Appetite Index (white, left-hand axis) and ETH spot price (purple, right-hand axis).

Figure 3. BTC at-the-money implied volatility across selected tenors. Source: Deribit, Block Scholes.

Figure 4. ETH at-the-money implied volatility across selected tenors. Source: Deribit, Block Scholes.

Figure 5. BTC 25-delta put-call skew ratio across selected tenors. Source: Deribit, Block Scholes.

Figure 6. ETH 25-delta put-call skew ratio across selected tenors. Source: Deribit, Block Scholes.

Block Scholes is an FCA-regulated institutional crypto derivatives analytics platform. Live data, IV surfaces, and backtesting available via blockscholes.com.

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