April 2026 in Crypto: Beyond the Strait

Digital asset markets continue to be buffeted by global geopolitics as the “limited military operation” against Iran extends longer than many anticipated at its inception. With the critical Strait of Hormuz being subjected to intermittent blockades by both the Iranians and the Americans, crude oil prices have been whipsawing around, albeit at levels that remain substantially higher than prior to the start of the conflict.

The macro effects of this conflict are in the early stages of playing out and, as we warned in the previous monthly update, the overall impact on digital asset prices will be heavily dependent upon its duration. This is a perspective shared by the IMF, who last month published their semi-annual World Economic Outlook. Their analysis indicated that real GDP growth would be only very modestly impacted, shaving just 0.2 percentage points off their 2026 projection while adding about the same amount to headline CPI inflation based on the critical assumption the conflict lasts for only a few more weeks – see image.

Latest IMF Global Growth and Inflation Forecasts

Source: IMF World Economic Outlook

While not ideal, such an outcome should not be overly challenging to tradfi or digital asset markets, especially as monetary and fiscal authorities have sufficient wiggle room to navigate a global negative supply shock of this magnitude. The problem though, as we pointed out last month, is that anticipating a swift conclusion to hostilities in the region is a very brave assumption given the incentives facing both sides.

Escalation Trap

Updating his analysis Professor Pape, whose substack blog Escalation Trap we referenced in the previous monthly update, outlined three key points. They were:

• Iran, which does not have to win the war but just survive, is gaining leverage—not losing it.
• The war is now an economic war more than a military war, centred on control of energy flows and economic disruption.
• The most dangerous phase – US ground forces being deployed to securing enriched uranium inside Iran – still lies ahead.

Speaking to the second point, Pape explicitly warned that:

“Within the next 10 days, parts of the global economy will begin running short of critical goods—not just more expensive, but unavailable—and markets are not prepared for the shift from price shock to physical constraint. By the time this shows up in headlines, the contraction will already be underway…”

If Pape’s assessment is correct, and let’s not forget he warned right at the start of the conflict that it would not be as short as President Trump intimated because air strikes alone have never delivered regime change (an early mission goal that the US appears to have softened towards, but which Israel appears to remain committed to), this would generate much more negative economic outcomes.

Referring back to the above chart containing the latest IMF forecasts, this would align with the organization’s adverse or severe scenarios. These envisage global economic growth falling by over a percentage point relative to the baseline forecast, which in the IMF’s words “mean[s] a close call for a global recession”. At the same time, they see headline CPI inflation hitting almost 6% both this year and next. This growth-inflation mix would present a major headache to global policymakers. Central banks would be hamstrung to inject additional monetary stimulus to head off recession because investors are extremely unlikely to buy another “transitory inflation” narrative having learned their lesson post-Covid when central banks were eventually forced into a handbrake policy U-turn, unleashing havoc in global asset markets and laying the foundation for the last crypto winter.

Debt Trap

Compounding the macro Gordian Knot, public sector balance sheets that were already stretched prior to the outbreak of hostilities in the Middle East, are coming under even greater pressure as many countries aggressively ramp up defence spending. In the case of NATO countries, the impetus is also being fuelled by President Trump’s accusations that its members have been free-riding on US defence spending for years (given the US accounts for 60% of the organization’s total budget Trump’s position is not without some merit).

While part of the increase in defence spending is being funded out of higher taxes and a reprioritisation of government spending, many countries are also increasing borrowing to fund it. For instance, EU member states have activated the “national escape clause” for 2025–2028 to temporarily exceed debt rules for defence. As a result of this fiscal pressure, the IMF latest projection is for global government debt is to hit 100% by 2029 – see image.

Global Public Debt (% GDP)

Source: IMF WEO

Such elevated levels are historically rare (unprecedented in peace time) and concerns about debt sustainability are increasing, even amongst the so-called cool heads. Indeed, former US Treasury Secretary Hank Paulson, who oversaw the 2008 financial crisis, last month warned that with US federal debt fast approaching the $40tr mark, the country must prepare an “emergency break-the-glass plan” for a potential “vicious” collapse in demand for US Treasuries.

History shows bringing down the such elevated debt burdens via fiscal consolidation alone (lower spending/higher taxes) is nigh impossible. Rather, countries typically resort to higher inflation facilitated by central banks hitting the printing press¹ because this is considered preferable to the alternative, debt default. Within the crypto world, this is a very popular narrative for owning digital assets and has been since its inception. After all, this is the exact scenario that motivated Satoshi Nakamoto to develop Bitcoin in the first place, to provide the public with an alternative form of money insulated from political and economic discretion.

This is not the only reason for continuing to hold a bullish long-term bias towards digital asset prices.

A New Crypto Use Case

As well as driving volatility in digital asset markets short-term, the Iran conflict has also brought to the fore a new use case for crypto. According to the Financial Times, Iran’s leadership announced that as part of reopening the Strait of Hormuz it is seeking to levy a $1 fee for every barrel of crude oil transported through the narrow stretch of water. Notably, while the US dollar is the referenced unit of account for the tax, Iran’s government is seeking payment in Bitcoin. Critics may view this as another example of crypto facilitating illicit activity, but the truth is deeper.

Due to the decentralized nature of the Bitcoin protocol, it cannot easily be frozen, sanctioned nor subject to capital controls unlike fiat currencies (see footnote 1). This makes it the perfect form of electronic money in a low trust environment (a pretty apt description of the international environment currently). Indeed, we made this very point in our last Monthly Update when we noted that “[c]rypto’s ability to serve as a neutral global settlement layer will likely be viewed as an increasingly valuable trait”.

Schrodinger’s Strait

After the first round of negotiations to end the conflict broke down President Trump announced that the US Navy would stop “any and all ships trying to enter or leave the Strait of Hormuz”. This is very much a red line for the Iranian leadership, so despite two ceasefires being announced last month – the first limited to two weeks, the second open-ended – the Iranians continued to attack containers seeking to navigate the Strait. So too did the Americans. Consequently, very little crude oil has gotten through². Hence, therefore it is unclear how much Bitcoin Iran has been able to raise from the levy (a new demand source for Bitcoin). However, this is not really significant, what is is that it sets precedent by establishing a proof of concept that crypto can function as sovereign settlement infrastructure. This is importance because although conflict is centred on Iran, it clearly extends beyond the Middle East. What we are really witnessing is a re-ordering of the global geopolitical landscape. Confirmation of this came last month when US Secretary of War, Pete Hegseth, announced that the US and Indonesia are “elevating our relationship to a Major Defense Cooperation Partnership” – see image.

US-Indonesian Defense Partnership

Source: X

The significance of this defence partnership lies in the fact that Indonesia forms one-side of the Strait of Malacca a key shipping route between Asia and the west, which as the graphic below shows, is substantially narrower than even the Strait of Hormuz.

Another Critical Strait

Source: X

Over 80% of China’s oil imports pass through this waterway, so via this Major Defense Cooperation Partnership, the US effectively has operational control over two choke points in China’s energy infrastructure, something it clearly intends to use as leverage over the world’s second largest economy. As Professor Pape warned, this marks the transition to an economic as much as a military war, one centred on control of global energy flows.

From Epic To Economic Fury

Further underscoring this shift, forty six days after the start of operation Epic Fury, on April 15, the US Treasury announced a complimentary financial strike against the regime with the not terribly imaginative title Economic Fury. According to the Treasury, the aim of the operation is to…

“… cut off Iran’s illicit smuggling and terror proxy networks.  Financial institutions should be on notice that Treasury will leverage all tools and authorities, including secondary sanctions, against those that continue to support Tehran’s terrorist activities.”

The primary goal is to paralyse Iran’s economy by targeting its remaining oil smuggling networks, but by targeting global banks and companies that continue dealing with Tehran, this “maximum pressure” approach risks creating significant diplomatic and economic blowback, causing friction between the US and its allies.

USD Weaponization

It also represents a continuation of the play book adopted by the US against Russia in 2022, when as punishment for invading the Ukraine, it decided to weaponize the use of the US dollar via the freezing over $400bn of the Russian central bank’s FX reserves and imposing financial sanctions on key players in the Putin regime.

As demonstrated by the record pace of gold buying by international reserve holders over the past few years, the message in non-aligned (and even some US aligned-countries) was received loud and clear: the US dollar is not a politically neutral investment vehicle.

Repeating the same actions only serves to further increase the desire for countries to transition away from the USD-centric global financial system in order to safeguard their independence and sovereignty. Such thinking, considered hyperbole just a few years back is now becoming much less so – see image.

US Secretary of State Rubio Gets It!

Source: X

Winners and Losers

Bearing this in mind, it is instructive to examine the cumulative price change for various leading asset classes since Operation Epic Fury began on February 28, as shown in the image below.

Cumulative price change since start of Operation Epic Fury

Source: Various (author calculations)

Bottom of the stack is gold with a near 10% price drop. Given the surge in geopolitical uncertainty, combined with the inflationary jump in crude oil prices, this is somewhat surprising. It suggests that, during this episode at least, the yellow metal has failed as a safe haven / inflation hedge (someone please check on the arch gold bug Peter Schiff!).

Also surprising – albeit somewhat less so – is that US ten year bond futures have lost around 2% over the same time frame, making it the second worst performing asset. Often, during periods of heightened risk aversion, bond prices rally as investors move into Safety First mode and purchase assets whose prices are historically less volatile. The failure of government bonds to gain in price over the past fifty days therefore suggests that investors are increasingly concerned about the sustainability of the US fiscal trajectory, or about the potential inflationary impact of the conflict, or both. Either way, the end result is the same, higher US Treasury yields (bond prices being the inverse of yield) as compensation.

Moving up the performance stack into positive territory, the two leading US stock indices, the SP500 and the NASDAQ, have displayed remarkable resilience in the face of increased geopolitical uncertainty and the growing recession risk, gaining 4% and 9% respectively. Partly, this could be attributable to investors believing that due to the dominance of high-margin technology and AI-related firms, whose earnings may appear less directly exposed to Middle East disruption, that this provides some insulation. It may also reflect confidence (over-confidence?) that the conflict will soon be resolved (betting on a Trump TACO), such that the damaging macro impact from higher oil prices will be contained.

Whatever the reason, the most pertinent return for us is that the undisputed leader when it comes to positive returns is crypto, with the price of Bitcoin having rallied almost 20%. This strong outperformance in our opinion is evidence that the Iran conflict is convincing a broader set of investors, many of which have very deep pockets, of the benefit of owning a trust-minimized digital store-of-value at a time when the global geopolitical landscape is fracturing.

1 It is often overlooked, but for this process to work countries often accompany it with financial repression measures such as closing (at least partially) the capital account to avoid capital flight, and capping long-term interest rates (AKA yield curve control) to stop a self-defeating surge in the cost of debt servicing.

2 Prior to the start of the conflict, 20 million barrels of crude oil passed though the strait, so every day it remains impassable, adds the cumulative loss of over half a billion barrels of crude oil already taken off the global market. To mitigate the impact, countries have been tapping into strategic reserves of crude oil and distillates – the latter also being negatively impacted by a series of suspicious refinery accidents – is rapidly dwindling, increasing the risk of negative-supply- shock-induced a global recession that the IMF warned about.