Crypto Digest - Monthly Update

What's top of mind

The tide may finally be turning for digital assets, with bitcoin and broader crypto markets breaking out of the range-bound trading pattern that defined much of this year. Strong exchange-traded product (ETP) inflows, short covering, and growing debt debasement demand suggest crypto may be emerging from its latest "crypto winter."

Key cryptocurrencies – Month in review

What happened

Digital assets posted a strong recovery in August, with bitcoin rallying from the low-$60,000s to above $80,000, supported by the largest weekly dollar gain in its history for the week ending August 21st, and the strongest US ETP inflows since its October 2025 all-time highs.¹ Improving regulatory clarity, including the SEC's proposed crypto asset framework, alongside growing concerns over US fiscal sustainability and currency debasement, helped drive renewed institutional interest in the asset class after the 10-month price slump.

Ethereum also attracted strong institutional demand as adoption of stablecoins, tokenized assets, and decentralized finance applications continued to expand. Meanwhile, investors closely followed discussions around potential changes to Ethereum's issuance model that could reduce staking rewards and further improve long-term token scarcity.

Solana was among the month's strongest performers, benefiting from robust network activity and growing tokenization initiatives. The network also remained a leading venue for onchain trading activity, while anticipation surrounding a governance proposal to double the annual disinflation rate helped support prices during the month. The proposal ultimately passed in late August, reinforcing expectations for slower future supply growth and a stronger long-term scarcity profile for solana.

What we think

Are we finally coming in out of the cold after this crypto winter? Bitcoin's move back toward $80,000 has investors wondering whether the nearly year-long slump in digital assets is finally coming to an end. One key level to watch is the 50-week moving average, currently near $81,100. Historically, reclaiming that level has marked an important turning point, with four of the past five bear markets giving way to more durable recoveries once bitcoin moved back above it.²

Institutional ownership remains another important tailwind. The recent security incident involving Coinkite self-custody wallets served as a reminder that holding digital assets directly comes with operational risks, reinforcing the appeal of spot crypto ETPs that offer institutional-grade custody, insurance coverage, and operational oversight. These advantages could become increasingly important as investors continue to look for potential debasement hedges.

Regulatory clarity also remains a key driver. While the timing of further legislative and regulatory progress remains uncertain, the broader direction continues to be constructive as policymakers work toward clearer rules for digital assets. In our view, the risk remains skewed to the upside. Even if regulatory progress takes longer than expected, growing institutional participation, stronger market infrastructure, and continued adoption should help support the long-term investment case.

Key drivers to watch

The debasement trade is back

• One of the key drivers behind the recent digital asset rally has been growing concern that rising US debt levels, now at over $40 trillion, could ultimately erode the value of the US dollar.³ Treasury Secretary Scott Bessent's decision to increase longer-dated US Treasury buybacks helped push yields and the dollar lower, reinforcing this narrative. The debt debasement thesis centers on the idea that persistent government overspending financed through debt can gradually diminish a currency's purchasing power over time, making hard assets an attractive way to preserve real value. While gold has traditionally been the primary hedge against currency debasement, bitcoin is often likened to "digital gold" due to its fixed supply and store-of-value characteristics, making it a viable “debasement trade” alternative.

Regulatory frustration

• Following the US Senate's failure to advance the CLARITY Act before its August recess, the SEC took matters into its own hands. On August 18, the agency released its proposed "Regulation of Crypto Assets" framework, aimed at modernizing securities laws for digital assets and exempting certain investment contracts from traditional registration requirements. SEC Chair described the proposal as the "most historic step" yet toward updating securities regulations for the digital asset era.⁴ However, the framework remains a proposal and must still undergo a public comment period, potential revisions, and a final Commission vote before taking effect.
• Attention now turns back to US Congress, where the Senate is scheduled to hold a key procedural cloture vote on the CLARITY Act on September 15. The measure requires 60 votes to end debate and advance the bill toward a full floor vote, though disagreements over ethics and stablecoin provisions remain. A failed cloture vote could effectively “kill the bill,” but optimism has improved after President Trump publicly urged Congress to pass the landmark crypto market structure legislation.⁵ Still, Galaxy Research assigns just a 10% probability that the CLARITY Act becomes law in 2026, citing a compressed legislative calendar and unresolved policy disputes.⁶

Cold wallet hack boosts ETP appeal

• In early August, hackers exploited a critical firmware flaw in Coinkite's Coldcard hardware wallets, resulting in the theft of approximately $150 million in bitcoin from thousands of users.⁷ The incident appeared to reinforce the appeal of institutional custody solutions, with US bitcoin ETP inflows climbing to a four-month high as investors increasingly favored professionally managed storage over self-custody. For most spot crypto ETPs, holdings are typically stored in institutional-grade cold storage, utilizing robust security protocols, restricted access controls, and insurance coverage designed to safeguard client assets.

The “Perps” did it

• What are “perps”? In this case, "perps" are NOT perpetrators committing crimes. They are perpetual futures contracts, a financial tool that lets investors gain highly leveraged exposures to an asset, using borrowed money to amplify returns. Unlike traditional futures contracts, which expire on a set date, perps have no expiration date and can remain open indefinitely. Investors must post collateral to maintain their position. If losses become too large and the collateral falls below a required level, the position is automatically closed, with no warning or margin call.⁸ During sharp market moves, large numbers of positions can be liquidated at once, creating a domino effect in which forced buying or selling amplifies price swings and increases volatility.
• The impact of perps was on full display on August 19-20, when the digital asset market experienced a record short squeeze. More than $1 billion of bitcoin short positions were automatically liquidated in roughly one hour, contributing to over $3 billion of leveraged crypto liquidations across the market in 24 hours.⁹ The resulting wave of forced buying helped fuel bitcoin’s 20%+ weekly surge, providing a textbook example of how a crowded short position, a macro catalyst, and cascading liquidations can amplify market moves. Onchain perp markets have grown substantially, exceeding $1T in monthly trading volume as of late 2025.¹⁰
• Open interest (the value of outstanding perps) is a key gauge of market leverage and positioning. Despite bitcoin's sharp August rally, open interest remained relatively subdued, suggesting the move was driven more by short covering than new leveraged buying. Meanwhile, US spot bitcoin ETPs attracted roughly $2 billion of inflows for the week ended August 21, marking the strongest weekly inflow in 10 months.¹

_{Double-digit returns are not indicative of future results. Past performance is not a guarantee of future results.}

Crypto definitions

• Tokenization is the process of converting ownership rights to a real-world or digital asset like stocks, bonds, and funds, into a digital token recorded on a blockchain. Each token represents some claim on the underlying asset—such as a fraction of a security, a piece of real estate, a unit of currency, or even access rights—and can be transferred, traded, or stored much like any other blockchain-based asset.
• Blockchain is a digital ledger maintained by computers worldwide in a decentralized manner, where each "block" is a packet of data, a digital ledger used to record cryptocurrency transactions, including bitcoin.
• Cryptocurrency is a type of digital money (like bitcoin) that’s not issued by a central bank or government. It uses secure technology to record and protect transactions, usually through something called a blockchain.
• Onchain refers to any activity that occurs directly on a blockchain and is recorded on its public ledger.
• Digital Asset Market Clarity Act (CLARITY Act) is proposed US legislation designed to establish a clearer regulatory framework for digital assets by defining when a crypto asset is a security versus a commodity and clarifying whether the SEC or CFTC has primary oversight authority. The bill is intended to reduce regulatory uncertainty that has long been viewed as a barrier to broader institutional adoption.
• Institutional-grade custody refers to the professional safeguarding of digital assets through regulated custodians that employ secure cold-storage infrastructure, insurance coverage, multi-layer security controls, independent audits, and operational oversight designed to meet institutional standards.
• A cold wallet is a method of storing cryptocurrency offline, meaning the private keys needed to access and transfer digital assets are kept disconnected from the internet.
• Stablecoins are cryptocurrencies designed to maintain a stable value by being pegged to another asset, most commonly the US dollar.

The opinions expressed are those of Kathy Kriskey and Lucy Lin, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals. This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations), and investors maynot get back the full amount invested.

Cryptocurrencies are subject to fluctuations in the value of the cryptocurrency, which have been and may in the future be highly volatile. The price of a digital currency could drop precipitously (including to zero) for a variety of reasons, including, but not limited to, regulatory changes, a crisis of confidence, flaw or operational issue in a digital currency network or a change in user preference to competing cryptocurrencies. Cryptocurrencies trade on exchanges, which are largely unregulated and, therefore, are more exposed to fraud and failure than established, regulated exchanges for securities, derivatives, and other currencies. Currently, there is relatively limited use of cryptocurrency in the retail and commercial marketplace, which contributes to price volatility.

There are risks involved with investing in exchange traded products (ETPs), including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements.