Brought to you by:

Welcome to the On the Margin Newsletter, brought to you by Ben Strack, Casey Wagner and Felix Jauvin. Here’s what you’ll find in today’s edition:

• What to watch for when perhaps the most important jobs report of the year drops tomorrow. 

• Trump’s mention of crypto (and a task force proposal) during a speech at the Economic Club of New York. 

• A look at the Fed’s cease-and-desist order that a crypto advocacy group is “investigating.”

What to expect before the most important jobs report of the year

Tomorrow will bring the most important jobs report we’ve had in years, and the reason is twofold:

1. Last month, the unemployment rate came in at 4.3%, significantly above the consensus estimate of 4.1%. Although part of it was due to a surge in temporary layoffs that should revert quickly, it shocked the market into being concerned about a recession looming closer than most anticipated. 

2. After Fed Chair Jerome Powell’s Jackson Hole speech (during which he explicitly said the Fed does not welcome any further cooling in the labor market) he has tied the Fed reaction function directly to movements in the labor market. The Fed reaction function is no longer tied to CPI prints. What this boils down to is that any further increase in the U3 unemployment rate (the key input into Fed models such as the Taylor Rule) will be matched by similar easing in Fed policy. 

Heading into tomorrow, here is where expectations lie:

Of these data points, the unemployment rate will likely be the key driver of how much the Fed is going to cut rates in the upcoming September meeting. My simple framework for outcomes is below:

• Below 4.2% print: Likely a cut of 25 basis points and potentially more hawkish signaling in terms of the pace of rate cuts moving forward.

• 4.2% print: Likely a 25 bps cut, but with more dovish signaling to a continuation of cuts.

• 4.3% and above print: Likely a 50 bps cut and heightened dovishness. 

Of course, basing policy on a single data point goes against the dozens of times Powell has repeated his mantra of being data-driven and looking at the data in aggregate. That said, it is clear we are walking a fine line at the moment where it feels like the unemployment rate could accelerate higher, or slow down at this current level. The Fed reaction functions would be very different between those two scenarios.

As for the outcome in the job gains/losses number itself, the possibilities are more mixed and noisy. As seen in the chart below, the initial prints (dotted-green) have been coming in higher than the future revised number (solid green). This has led to a much noisier signal in terms of what is truly occurring in the labor market, given there’s been such large revisions after the fact. That said, the median estimate of 150,000 is a significant upside reverse compared to the previous month, which is a positive sign for the state of the labor market.

Finally, one data point we can look at today as a hint for tomorrow’s number is the ADP employment report.

Although the signal is mixed, such a downside surprise in the outcome does spell some concern for a miss on the NFP print as we head into it tomorrow. The one thing we do know? Tomorrow’s print will likely set the trend for markets for the rest of the fall.

— Felix Jauvin

The trading volume amount that prediction market platform Polymarket recorded in August. It’s an $85.8 million increase from July, Polymarket said, and marks the platform’s highest-volume month ever. 

Despite not being accessible by those in the US, the biggest bets on Polymarket remain linked to the US presidential election. Users have wagered $800.7 million on who will win in November. Donald Trump currently leads in Polymarket polls, 53% to 46%.

Brought to you by:

MANTRA is a purpose-built RWA layer-1 blockchain capable of adherence and enforcement of real world regulatory requirements. As a permissionless chain, MANTRA empowers developers and institutions to seamlessly participate in the evolving RWA tokenization space by offering advanced tech modules, compliance mechanisms, and cross-chain interoperability.

Key Features:

• Built using Cosmos SDK, IBC compatible, with CosmWasm supported

• Secured via a sovereign PoS validator set

• Scalable up to 10k TPS

• Built-in Modules, SDKs and APIs to create, trade and manage regulatory compliant RWAs

• Improved User Experience to onboard non-native users and institutions to Web3

Donald Trump addressed members at the Economic Club of New York Thursday, where he once again promised to make the US the “world capital for crypto and bitcoin.” 

That one line was the extent of Trump’s crypto-related comments this afternoon. He spoke for an hour, discussing plans to decrease dependence on foreign energy and lower the national debt, among other things. 

Most notably though, the Republican presidential nominee said that — at the direction of Tesla CEO Elon Musk — he will create a new federal task force. 

“I will create a government efficiency commission tasked with conducting a complete financial and performance audit of the entire federal government and making recommendations for drastic reforms,” Trump said. “Elon [Musk], because he's not very busy, has agreed to head that task force.”

I’m not sure how this would impact Tesla (or Musk’s responsibilities running his various other businesses), but TSLA shares rose about 1% while Trump was speaking.

With regards to World Liberty Financial, we don’t know for sure if there will be a token, although there are reports that a token is in the works. To be clear, we don’t really know what the project is at all. 

According to its latest posts on X, World Liberty will be built on Aave, and the platform’s goal is to maintain US dollar dominance. There seems to be some connection with stablecoins, although exactly what this is remains up in the air. 

Should there be a World Liberty Financial token, or even a stablecoin, the SEC is going to be interested. They probably already are. Trump has said he would remove SEC Chair Gary Gensler “on day one” should he be re-elected. But even if Gensler is replaced with another commissioner, that isn’t protection against an enforcement action.

— Casey Wagner

As the so-called “regulation by enforcement” trend against the crypto industry appears to continue, an advocacy group is investigating one of the latest actions.

The Fed on Wednesday disclosed a cease-and-desist order against crypto-friendly bank United Texas Bank.  

An examination by the central bank identified “significant deficiencies” around risk management and compliance with anti-money laundering (AML) laws, including the Bank Secrecy Act, according to a Wednesday filing. 

These alleged shortcomings were related to “foreign correspondent banking and virtual currency customers,” the Fed noted. 

United Texas Bank did not immediately return a request for comment. 

“It’s no secret there is a coordinated attempt to choke off the digital asset industry’s access to the traditional banking system,” Blockchain Association policy counsel Laura Sanders told Blockworks. “We are investigating yesterday’s troubling news, which unfortunately may be more of the same: deliberate targeting of banks that serve digital asset customers.” 

Custodia Bank founder Caitlin Long put it a bit more succinctly in an all-caps X post: “ANOTHER CRYPTO BANK, ANOTHER ENFORCEMENT ACTION.”

(An aside: The Federal Reserve Board last year denied Custodia’s application to become a member of the Federal Reserve System — noting the bank’s crypto focus “presented significant safety and soundness risks.”)

“Regulators have such broad mandates on monitoring and compliance that they can basically selectively enforce against anyone they want,” former VanEck crypto strategy lead Gabor Gurbacs said on X in response to Long’s post. “It seems wrong.”

Having déjà vu? Us too. The Federal Reserve Bank of Philadelphia identified the same type of AML-related “significant deficiencies” at Customers Bank and its parent company last month.

It mentioned Customers Bank’s services to “digital asset” clients in the action, including their capacity to make tokenized payments over a distributed ledger technology system.

A few days after the Aug. 5 “agreement,” Customers named a chief compliance and AML officer to work on “strengthening Bank Secrecy Act and Anti-Money Laundering protocols for the company’s digital asset business.”

Wednesday’s cease-and-desist order came the same day Uniswap agreed to pay $175,000 to settle claims made by the CFTC. 

In a dissenting opinion, CFTC Commissioner Summer Mersinger said the Uniswap case “has all the hallmarks of what we have come to know as regulation through enforcement.” 

Industry players are waiting to see if a new presidential administration might offer regulatory clarity to crypto businesses. Until then, their options appear limited.

— Ben Strack

Hear executive leaders from Galaxy, BlackRock and Coinbase on what they think about the future of crypto in the US.

• A new report and poll from Northeastern University shows that political experts have differing opinions on how important the so-called “crypto voter” will be come November. While some say crypto-focused individuals are more likely to donate than vote, others say the bloc is a diverse group that candidates cannot afford to ignore this election. 

• Mastercard has launched a new euro-dominated, non-custodial crypto debit card through a partnership with infrastructure provider Mercuryo. The announcement comes after Mastercard tested a similar product with MetaMask last month. 

• The entire On the Margin team will be at Permissionless in Salt Lake City next month! Get your tickets now. Prices are only going up, and we want to meet you.