July 2026 in Crypto: Dips, Blips & BIPs

Leading From The Front

After a lousy first half that culminated with a 20% drop in June, digital asset prices regained bullish momentum in July, with the major tokens taking the lead. Bitcoin, the seminal cryptocurrency, rebounded around 10% a gain that helped power our flagship large cap Top 10 CTI up by a similar amount.

What makes this rebound all the more impressive is that it occurred despite the return of heightened geopolitical tension in the Middle East after the US and Iran exchanged repeated air and drone strikes, severely testing the continued validity of Islamabad MoU agreed on June 12.

US Inflation Cools…

One factor that certainly benefited digital asset markets came from the macro front with US CPI inflation coming in significantly below consensus expectations in June. According to the release, headline inflation fell 0.7 percentage points to 3.5% y/y, with core inflation also surprising to the downside, easing to 2.6% y/y from 2.9% previously. Even though this means inflation still exceeds the Fed’s 2% target, it marks a notable shift after four consecutive months of accelerating inflation – see chart.

US CPI Inflation – Headline and Core

Source: Fred database

The primary driver of the decline in headline inflation was lower energy prices, particularly gasoline, after crude oil prices fell sharply following the ceasefire. Notably, despite the renewed military exchanges between the US and Iran last month, crude prices remain around 30% below their April peak. While this may appear counter-intuitive given the heightened geopolitical tensions, the relative weakness in crude prices is, ironically, partly a consequence of the conflict.

Following the reopening of the Strait of Hormuz, tanker traffic from the Gulf recovered and crude exports resumed. At the same time, however, global refinery throughput has fallen by around 6 million barrels per day compared with a year ago as refining capacity has been disrupted by war damage—not only in the Gulf but also in Russia following repeated Ukrainian drone strikes. Consequently, crude supplies have recovered more quickly than the industry’s ability to process them, leading to a temporary build-up in crude inventories. Indeed, global crude stocks increased by 21 million barrels in June, marking the first monthly inventory build since the onset of the US-Iran conflict.

This unusual market dynamic is most clearly reflected in crack spreads—the difference between the price of crude oil and refined petroleum products—which have climbed to record highs of around $70 per barrel (see chart below). In effect, the oil market has become bifurcated. A temporary surplus of crude relative to available refining capacity has kept crude prices lower than would normally be expected during a geopolitical crisis. At the same time, constrained refining capacity has tightened supplies of gasoline, diesel and other refined products, pushing refining margins to record levels.

US Crack Spreads vs. Crude Oil Price

Source: X (via @TheValueist)

For June, the decline in crude prices proved to be the dominant force. Lower feedstock costs filtered through to gasoline prices and helped moderate headline inflation, reassuring investors that the Fed was unlikely to respond to geopolitical developments with further policy tightening. Indeed, the implied probability of a July rate hike fell from 35% to just 8%, a substantial repricing of the near-term policy outlook that provided a strong tailwind for risk assets and helped propel digital asset prices higher by more than 4%. (The FOMC subsequently voted 6-3 for unchanged Fed funds, with the three dissenters preferring a rate hike).

However, investors should be cautious about extrapolating this disinflationary impulse. The current weakness in crude prices reflects a temporary imbalance between crude supply and refining capacity rather than an easing of underlying geopolitical risks. With inventories of refined products already at multi-decade lows¹, any renewed disruption to crude production or transport (such as Iran-backed Houthi attacks on Saudi ships in the Red Sea) —or a slower-than-expected recovery in global refining capacity—could quickly reverse the recent decline in fuel prices. In other words, although lower crude prices helped suppress inflation last month, the medium-term balance of risks for energy prices remains skewed to the upside.

… But The Fed Stays Cautious

Such thinking would explain why new Fed Chair Warsh struck an overall hawkish tone in his first semi-annual Humphrey-Hawkins monetary policy testimony before Congress last month. Warsh expressed confidence in the underlying resilience of the US economy while reiterating that returning inflation sustainably to the Fed’s 2% target remains the central bank’s overriding priority. Although he described the June CPI report as encouraging, he emphasised that a single favourable reading was insufficient to justify a change in policy. Instead, the FOMC would need to see sustained evidence that inflation is moving durably lower before concluding that price stability has been restored. Echoing earlier comments, Warsh stressed that the Fed has “no tolerance” for persistently elevated inflation.

Consistent with his post-meeting press conference, Warsh also declined to provide explicit forward guidance on the likely path of the federal funds rate, reinforcing his preference for a genuinely data-dependent approach. This marks a notable departure from the communication strategies employed by his three immediate predecessors, all of whom relied more heavily on forward guidance to shape market expectations. By reducing the emphasis on signalling future policy decisions, Warsh appears intent on giving the Committee greater flexibility to respond to incoming economic data rather than becoming constrained by previously communicated expectations.

Interestingly, the testimony proved insufficient to derail the rally in digital assets. Such resilience suggests that much of the pessimism that weighed on the sector earlier in the year has now been exhausted, leaving investor sentiment increasingly responsive to positive macroeconomic developments.

Regulatory Momentum

Beyond the macroeconomic backdrop, investors also received a reminder that the regulatory push for digital assets continues. Attention remained firmly focused on Washington, where momentum behind the Digital Asset Market Clarity (CLARITY) Act accelerated following renewed intervention from President Trump. According to reports, Trump has urged Senate Republicans to secure the bipartisan support needed to pass the legislation before Congress the summer recess, which begins on August 7.

One of the major sticking points in negotiations to get the CLARITY Act passed relates to ethics provisions relating to government officials’ crypto holdings. On this front, there was meaningful movement last month. According to media reports, in a bid to get the legislation passed quickly, the White House has agreed to an ethics provision in the bill barring all federal officials from offering or issuing digital assets. However, some Democrats in the Senate are reportedly still dissatisfied with some of the details, specifically who is tasked with enforcing the ban, meaning its passage remains uncertain.

Japan, by contrast, has made greater legislative progress towards digital assets. On 15 July, their parliament approved legislation formally reclassifying cryptocurrencies as financial assets under the Financial Instruments and Exchange Act, moving them away from their previous treatment primarily as payment instruments. The reform represents one of the most significant regulatory developments for digital assets outside the US, bringing cryptocurrencies under the same legal framework that governs more traditional investment products. As such it highlights an important structural shift taking place across major economies, with policymakers seeking to integrate the asset class into existing financial frameworks while improving investor protections and encouraging institutional participation. This improving regulatory landscape stands to be an important driver of digital asset adoption over the medium term.

For the US though, there is an additional strategic imperative behind Team Trump’s push to establish a comprehensive regulatory and legal framework for digital assets.

US Economic Statecraft

Ahead of America’s 250th Independence Day celebrations, Treasury Secretary Scott Bessent delivered a speech at the Economic Club of New York. It was a significant address because it articulated what is arguably the intellectual framework underpinning the next phase of US economic policy.

Bessent argued that economics can no longer be separated from national security and that the era of globalisation—defined primarily by efficiency and cost reductions—is giving way to one in which resilience, reciprocity and strategic advantage carry equal weight. Viewed through this lens, his remarks should be seen as the economic counterpart to the Donroe Doctrine (also known as Monroe 2.0) outlined in the November 2025 US National Security Update, which we discussed at length in the January Monthly Update.

The policies required to secure Bessent’s goals of greater resilience, diversification and domestic productive capacity, appear inherently inflationary because they are all more expensive than the hyper-efficient global production model they replace. This points towards structurally higher inflation than investors became accustomed to in the post GFC world. It also suggests somewhat higher equilibrium interest rates, sustained fiscal deficits and increased government involvement in directing capital towards sectors considered strategically important.

The AI Deflation Counterweight

However, focusing solely on these inflationary pressures risks overlooking what may prove to be the most important countervailing force shaping the next decade: AI. It is notable that AI sits alongside semiconductors and quantum computing as one of the industries in which Bessent argues the US must lead—not simply to win a geopolitical contest, but because AI may be the mechanism that offsets many of the economic costs of statecraft itself. Perhaps the most useful way to interpret the speech is as an attempt to fuse strategic industrial policy with a technological revolution capable of paying for it.

This distinction matters because the modern US economy is overwhelmingly a services economy. If AI meaningfully compresses the cost of knowledge work—legal services, coding, administration, customer support, financial analysis—it could exert sustained downward pressure on services inflation even as reshoring and industrial policy push goods prices higher. That would be a genuinely novel dynamic: a supply-side deflationary force operating in parallel with a policy-driven inflationary one, rather than the more familiar pattern of monetary tightening chasing an inflation problem after the fact.

This creates an intriguing macroeconomic tension, and ultimately a bet on timing. Economic statecraft trades short-term efficiency for long-term resilience, and that trade is unambiguously inflationary in the near term. Whether it proves sustainable depends on whether AI-driven productivity gains in services arrive fast enough, and at sufficient scale, to offset goods-side inflation before it becomes entrenched in expectations. If the productivity dividend lags the rollout of reshoring and resilience measures, the US risks a prolonged period of higher inflation and higher interest rates without the offsetting growth Bessent’s framework implicitly assumes. If it doesn’t lag, AI deflation could end up being the release valve that makes an otherwise costly industrial policy sustainable. That said, the speech’s most consequential passage for crypto investors wasn’t about inflation at all — it was about the US dollar.

From Petro To Digital

Bessent explicitly embraced stablecoins, tokenisation and next-generation payment systems as a means to strengthen the US dollar and preserve American financial leadership. Indeed, the US Treasury appears to view US dollar-backed stablecoins as strategic assets. This position becomes easier to understand when viewed within the broader geopolitical context.

Given the apparent intractability of the US-Iran conflict, concerns are growing that the Gulf states could gradually lose confidence in America’s willingness or ability to remain the dominant security guarantor in the region. That security relationship has long been regarded as one of the principal foundations of the petrodollar system established in 1974 following President Nixon’s decision to close the gold window. By encouraging crude oil to be priced and settled predominantly in US dollars, the system created structural demand for the currency while also generating sustained demand for US financial assets, particularly Treasury securities, as oil-exporting nations recycled their surpluses into American capital markets.

If prolonged geopolitical instability were to encourage a growing share of global oil trade to be settled in currencies other than the US dollar, policymakers would inevitably seek new mechanisms to reinforce the dollar’s international role. Against this backdrop, legislation such as the GENIUS Act and the CLARITY Act can be interpreted as serving a broader strategic purpose. Together they establish the legal foundations for bringing an increasing share of dollar-denominated financial activity onto blockchain infrastructure while ensuring that these transactions continue to occur within a US-regulated ecosystem.

Over time, a growing proportion of traditional financial assets—including Treasury securities, institutional money market funds, short-term debt instruments and, potentially, equities and ETFs—could migrate onto blockchain-based settlement infrastructure through tokenisation. Settlement within this ecosystem is likely to rely increasingly on regulated dollar-backed stablecoins—or, in the language of the legislation, “permitted payment stablecoins”. In this sense, digital dollars have the potential to extend the reach of the US financial system into the next generation of global payments in much the same way that the petrodollar system underpinned dollar dominance over the past half century.

What does this imply for unbacked decentralized digital assets like Bitcoin, Ethereum and Solana, none of which gets a mention in Bessent’s speech?

Despite the omission, the broader doctrine outlined in the speech may still prove supportive for over the long term.

A world characterised by greater geopolitical fragmentation, strategic competition, larger fiscal deficits and higher government borrowing is one in which investors are likely to assign greater value to scarce, politically neutral reserve assets (a perspective we outlined as early as 2022). Gold has already benefited from this changing environment, and Bitcoin and other finite-supply cryptos are increasingly occupying a similar position as a digital store of value rather than as an alternative payments system.

AI, however, introduces an important nuance. If it succeeds in generating a sustained wave of productivity growth and services disinflation, then Bitcoin’s traditional role as an inflation hedge becomes somewhat less compelling. But Bitcoin’s investment case has evolved considerably in recent years. Increasingly, institutional investors view it less as protection against inflation alone and more as a scarce global reserve asset that provides diversification from sovereign fiscal and monetary risks. That argument remains intact even if AI moderates inflation.

BIP110 – The Spam Filter

While policymakers around the world are making progress towards providing clearer legal frameworks for digital assets, the industry’s largest blockchain is simultaneously grappling with a very different form of governance issue. Unlike tradfi markets, where regulatory change is imposed from above, Bitcoin’s evolution depends on achieving consensus among a decentralised community of developers, miners, businesses and users. This distinction has been brought sharply into focus by the debate surrounding Bitcoin Improvement Proposal (BIP) 110, which has become one of the protocol’s most contentious governance discussions since the activation of SegWit in 2017.

BIP 110 aims to tackle blockchain bloat by temporarily restricting the amount of arbitrary, non-financial data that can be embedded within Bitcoin transactions. With an early August activation deadline approaching, the proposal has attracted intense discussion across the Bitcoin ecosystem despite failing to attract meaningful support from miners. At the time of writing, miner signalling remains around 2%, substantially below the 55% (1,109 of every 2,016 blocks) required for early lock-in required.

Although BIP 110 currently appears unlikely to become the adopted version of Bitcoin, the debate itself has become one of the most important governance discussions the network has faced since the SegWit activation battles nearly a decade ago. Indeed, several influential Bitcoiners, such as Michael Saylor, Adam Back and Jameson Lopp, argue that, rather than solving Bitcoin’s growing “spam” problem, the proposal risks creating a governance crisis.

At its core, BIP 110 asks a deceptively simple question: what is Bitcoin’s block space actually for? Bitcoin transactions have always been capable of carrying small amounts of additional data through mechanisms such as OP_RETURN, but the arrival of Ordinals in 2023, inscriptions, Runes and other protocols has dramatically expanded the use of block space for storing images, text, token metadata and other non-monetary information. Supporters of BIP 110 argue that these uses distort Bitcoin’s original purpose as a peer-to-peer electronic cash system by filling blocks with data that has little to do with transferring value. BIP 110 would temporarily restore tighter limits on OP_RETURN while restricting larger data pushes used by many inscription protocols. Importantly, it is designed as a one-year soft fork rather than a permanent protocol change, giving the community time to reassess whether the restrictions remain necessary after observing their effects.

Supporters believe the proposal would deliver several tangible benefits. The most obvious is reducing the size of the blockchain. Every additional byte permanently stored on Bitcoin (a full archival copy of the blockchain is currently 753GB) must be downloaded, verified and retained by every full node around the world. As blockchain size continues to grow – see image below – operating a fully validating node becomes increasingly expensive, raising concerns that only larger organisations will be able to participate in network validation. Restricting arbitrary data could therefore help preserve one of Bitcoin’s defining characteristics—its decentralisation.

Bitcoin Blockchain Size (MB)

Source: blockchain.com

Advocates for the BIP also argue that reducing non-financial transactions would free scarce block space for monetary transfers, potentially lowering congestion during periods of heavy network demand. For long-time Bitcoin developers who view the blockchain primarily as a payments settlement network, limiting data storage represents a return to Bitcoin’s original design philosophy rather than the introduction of something entirely new.

However, the primary criticism of opponents is philosophical rather than technical. Bitcoin has historically operated under the principle that any transaction complying with consensus rules and paying the required fees should be treated equally, regardless of its purpose. BIP 110 effectively introduces value judgements into consensus by determining which types of transactions deserve inclusion and which do not. Critics argue that this establishes a dangerous precedent whereby future protocol changes could selectively exclude other categories of activity based on subjective preferences rather than objective technical requirements.

There are also important economic considerations. While many Bitcoin users dislike inscriptions and token protocols, they have become a significant source of transaction fee revenue for miners. Since the 2024 halving reduced the block subsidy to 3.125 BTC, transaction fees have become increasingly important in supporting mining profitability. Removing or restricting high-fee data transactions could reduce miner income at a time when Bitcoin’s long-term security increasingly depends upon fee generation rather than newly issued coins (a subject we outlined in a previous research note). Ironically, many of the very transactions criticised as “spam” have helped demonstrate that users are willing to pay meaningful premiums for scarce block space. From this perspective, inscriptions are not abusing Bitcoin—they are participating in precisely the competitive fee market the protocol was designed to create.

In many regards, the debate reflects Bitcoin’s continuing evolution beyond a simple payment network. Five years ago, few would have imagined Bitcoin competing with other blockchains as a platform for NFTs, token issuance or digital artefact storage. Today, whether supporters approve or not, these activities represent a growing share of on-chain demand. This raises a broader question facing Bitcoin’s community: should the protocol actively discourage uses considered inconsistent with Satoshi Nakamoto’s original vision, or should the market determine how block space is allocated? The answer has implications extending well beyond Ordinals. Future innovations—including tokenised assets, identity systems or timestamping applications—may all depend upon the same flexibility that BIP 110 seeks to constrain.

Even if, as seems likely, BIP 110 fails, its significance is that it has exposed fundamental disagreements over neutrality, censorship resistance, miner incentives and protocol governance within the Bitcoin community that are unlikely to disappear. As the network continues to mature and attract increasingly diverse use cases, these governance questions will almost certainly become more frequent. Whether Bitcoin remains purely a monetary network or evolves into a broader settlement layer for digital assets may ultimately depend not on technical capability, but on the willingness of its decentralised community to reach consensus without compromising the principles that have underpinned the protocol for more than seventeen years.

Only time will tell.

1 The US Strategic Petroleum Reserve (SPR) recently hit a 30-year low of 307 million barrels – see: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCSSTUS1&f=W