The United States factory engine just delivered its loudest “risk on” signal in years, and it is landing at a brutally awkward time for Bitcoin.
On Feb. 2, Howard Lutnick, the United States Secretary of Commerce, announced that:
“The United States has delivered manufacturing expansion, all thanks to President Trump’s trade policies.”
This announcement followed the Institute for Supply Management’s report that the Manufacturing PMI rose to 52.6 from 47.9 in January. This ended a year-long stretch of contraction and marked the strongest reading since mid-2022.
According to the reading, new orders surged to 57.1, production climbed to 55.9, and backlogs expanded to 51.6. Customers’ inventories fell to 38.7, which is the “too low” zone that often foreshadows restocking and additional factory output.
That mix, recovering demand and lean inventories, is the kind of setup that can push markets from defensive to opportunistic.
Yet Bitcoin is entering this macro inflection already bruised. BTC is trading around $78,000 after a drawdown of about 38% from its 2025 all-time high near $126,000 and a recent bout of volatility that has soured market sentiment.
In light of this, the question is not whether the PMI print looks strong. The question is whether this PMI surprise loosens financial conditions or convinces investors that the Federal Reserve needs to keep policy restrictive for longer, thereby keeping liquidity tight and speculative assets subdued.
A risk-on signal with an asterisk
A PMI reading above 50 signals expansion, and the January move to 52.6 is large enough that many analysts describe it as the fastest improvement in manufacturing conditions since 2022.
Market analysts noted that the internal composition of the increase exhibited a typical restocking pattern.
According to them, customers had allowed inventories to run down, then start placing new orders, which lifts production, backlogs, and supplier activity.
If that pattern persists for several months, it can support a broader upturn in industrial activity.
The Institute for Supply Management itself still cautioned against drawing a straight line from this one print to a clean recovery.
According to the institute, a meaningful part of the January pop likely reflects post-holiday reordering and front-running of tariff-related price increases. These are forces that can flatter near-term data while borrowing demand from later in the year.
For crypto, that nuance matters. Bitcoin’s genuine wake-up moments tend to require durable macro impulses, not one-month spikes.
A single PMI print will not reprice the entire asset class unless February, March, and beyond confirm the move, ideally with new orders holding in the mid 50s and some evidence that price pressures are cooling.
When stronger growth becomes a headwind
For risk assets, stronger growth can be bullish, unless it implies higher rates for longer.
The Prices index at 59.0 indicates that input costs are still rising at a healthy clip. At the same time, the Federal Reserve is holding its policy rate in the 3.50%-3.75% range and has stressed that future decisions depend on incoming data and ongoing progress in inflation.
If investors interpret “growth is back” as “inflation risk is back”, Treasury yields and the dollar can rise. That tightens financial conditions and tends to weigh on assets that depend on low interest rates and abundant liquidity, including Bitcoin.
In recent years, BTC’s behavior has increasingly resembled that of a high beta equity: it tends to perform best when real yields are falling, credit is easy, and liquidity is improving.
However, it struggles when policy feels tight.
That framing helps explain why Bitcoin has not reacted positively to every strong macro report.
In the current regime, stronger activity can translate into fewer rate cuts or delayed cuts, and that can blunt the “risk on” impulse that would otherwise feed into crypto.
‘Bitcoin is not the economy’
Within the crypto community, the recent PMI surge has reignited a long-running debate about if the PMI rating signals an imminent rally.
Andre Dagosch, Bitwise’s Europe head of research, has suggested that it is naive to ignore the information embedded in the recent precious metals rally and the reflation signals coming from ISM. His point is that similar PMI reversals in 2013, 2016, and 2020 lined up with some of Bitcoin’s most powerful bull runs.
This view is also echoed by Joe Burnett, vice president of Bitcoin strategies at Strive Asset Management, who noted that this latest move ended 26 consecutive months of contraction and that previous breakouts above 50 have often been key turning points for BTC.
However, others are challenging this bullish thesis.
Benjamin Cowen, the founder of ITC Crypto, pointed out that treating the ISM as a directional compass for Bitcoin can be dangerous.
His preferred case study is 2014 and 2015. In January 2014, the ISM stood at about 52.5, while BTC traded near $737. By December 2014, the ISM had climbed to about 55.7, yet Bitcoin had fallen to roughly $302.
In January 2015, ISM was near 54.0, with BTC around $322. By the end of that year, ISM had slipped to roughly 48.8, while Bitcoin had risen to about $429.
According to him, anyone who used the ISM to predict Bitcoin’s direction in those years would have been wrong twice. When the ISM increased in 2014, BTC declined. When the ISM went down in 2015, BTC went up.
Cowen’s argument is that a similar divergence is entirely possible in 2026. The index was 52.5 in January 2014 and 52.6 in January 2026, indicating that the levels are nearly identical.
He sees a realistic path in which ISM rises through 2026 while Bitcoin posts a red year, just as it did more than a decade ago.
Underwater in the regulated wrapper
Cowen’s argument is worth considering because Bitcoin is no longer merely an offshore trading instrument; it now appears in US spot exchange-traded funds (ETFs) held in brokerage and retirement accounts.
These 12-listed products hold around 1.29 million BTC, about 6.5% of the circulating supply, and attracted approximately $62 billion in net inflows at their peak.
Alex Thorn, Galaxy Digital’s Head of Research, posited that the latest drawdown brought BTC’s price about 7% to 10% below the average ETF creation cost, which he estimates at $84,000 to $90,200.
In dollar terms, ETF investors are holding unrealized losses of approximately $7 billion.
Unlike early self-custody holders, this cohort comprises advisers and institutional allocators who are subject to portfolio rules and scrutiny by risk committees. A position that is down 30% to 40% within a regulated wrapper necessitates difficult decisions at quarter-end.
Notably, the ETF flows already reflect that pressure. January was the third-worst month on record for US spot Bitcoin ETFs, with roughly $1.6 billion in net outflows, according to Coinperps data.
At the same time, on-chain data suggest a “supply gap” in the $70,000–$80,000 range, where relatively few coins have last changed hands, and that a large share of recent selling has come from cohorts that bought near the highs above $111,000.
Realized price and the 200-week moving average, two long-watched cycle indicators, cluster in the high-$50,000s. Historically, those levels have marked strong entry points, but they are also approximately 20%–25% below today’s prices.
That is the tension the ISM breakout walks into.
On the one hand, macro strategists like Raoul Pal argue that expansionary PMI readings are a “necessary condition” for sustained crypto strength, especially when paired with rising liquidity.
On the other hand, the actual holders of the ETF-era market are staring at red P&Ls and liquidity that, for now, is flowing the wrong way.
What next for Bitcoin?
The real test is what happens if those two stories stay out of sync. Imagine a year in which ISM marches higher, subindices stay strong, and metals continue to trade like a reflation hedge while Bitcoin grinds toward its realized price and 200-week moving average in the high-$50,000s.
For ETF issuers, this would mean marketing a macro-hedge product that has underperformed both the S&P 500 and the commodities it was intended to complement.
They would have to explain to advisers why “debasement hedge” and “digital gold” narratives haven’t delivered in a period of real-world stress and reflation.
Consequently, setting the January ISM data alongside Bitcoin’s current structure presents three broad scenarios that stand out.
Goldilocks restocking, the bullish breakout case
In the bullish case, PMI remains above 50 for several months, New Orders remains around or above 55, and the Prices index begins to drift lower from 59.0 toward the mid-50s. Growth appears solid, but inflation signals are cool enough that the market keeps its expectations for rate cuts in the second half of 2026.
Equities would likely continue to grind higher, credit spreads would stay contained, and real yields could ease.
For Bitcoin, that combination, together with signs that long-term holder selling has slowed and that on-chain levels like the realized price near $56,000 and the 200-week moving average near $58,000 are approaching, could finally reawaken dip buyers.
ETF outflows could stabilize or reverse, volatility could reprice higher from compressed levels, and the overall setup would resemble past risk-on phases that delivered strong BTC rallies.
Hot growth with sticky inflation is a macro headwind for BTC
In the second scenario, PMI remains firm or rises further, while the Prices index remains close to 59.0 or rises. Markets conclude that growth is strong enough to keep the Federal Reserve cautious, and the expected path of rate cuts shifts to lower magnitude or to a later horizon.
In that environment, Treasury yields and the dollar can strengthen, financial conditions can tighten, and the opportunity cost of holding non-yielding, volatile assets rises. Equities might still respond positively for a time, especially in cyclical sectors, but Bitcoin would have to contend with a macroeconomic backdrop that penalizes duration and speculation.
With ETF holders already sitting on losses and risk committees wary, that setup makes it harder for BTC to convert a solid PMI print into a sustained breakout.
A false dawn, the return of risk off
In the third scenario, January’s leap proves transitory. If the boost from post-holiday reordering and tariff hedging fades, and if subsequent PMI readings slide back toward 50 or below, markets could face the worst combination for crypto: growth optimism fades, but leverage has already been flushed and ETF outflows have already occurred.
Bitcoin would still be working through the aftermath of its post 2025 peak, with significant supply last moved between about $80,000 and $92,000 and a clear “ownership gap” between $70,000 and $80,000.
In such a case, the price could drift toward the realized price of around $56,000 and the 200-week moving average near $58,000, levels that have historically marked cycle bottoms, but it would be doing so without support from a convincing macroeconomic growth narrative.
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