The US factory engine is about to land at a very troubling time for Bitcoin, having just issued its biggest “risk-on” signal in years.
On February 2, U.S. Secretary of Commerce Howard Lutnick announced:
“The United States has been able to expand its manufacturing industry entirely because of President Trump's trade policies.”
The announcement follows a report from the Institute for Supply Management that showed the manufacturing PMI rose to 52.6 from 47.9 in January. This ended a year-long economic downturn and was the strongest reading since mid-2022.
It said new orders jumped to 57.1, production rose to 55.9 and the backlog expanded to 51.6. Customer inventory decreased to 38.7. This is the “too low” zone that often portends replenishment and additional factory production.
This combination of recovering demand and falling inventories is the kind of setup that could push the market from defensive to opportunistic.
However, Bitcoin is already hurting and entering this period of macro inflection. Bitcoin is trading around $78,000, down about 38% from its all-time high of around $126,000 in 2025, as recent volatility has soured market sentiment.
Considering this, the question is not whether the PMI print looks strong or not. The question is whether this PMI surprise will ease financial conditions, or whether the Fed will continue its restrictive policy for a longer period of time, thereby convincing investors of the need to tighten liquidity and rein in speculative assets.
Risk on signal with asterisk
A PMI reading above 50 is a sign of expansion, and January's rise to 52.6 was large enough that many analysts are describing it as the fastest improvement in manufacturing conditions since 2022.
Market analysts noted that the internal composition of the increase shows a typical replenishment pattern.
They said customers allowed inventory to run out but then started placing new orders, increasing production, backlogs and supplier activity.
If this pattern continues for several months, it could support a broader upturn in industrial activity.
The Supply Management Association itself still warns against drawing a straight line from this printout to full recovery.
The institute said a significant portion of January's pop likely reflected post-holiday reorders and the front-loading of tariff-related price increases. These are forces that could improve near-term data while borrowing demand later this year.
When it comes to cryptocurrencies, nuances matter. Bitcoin’s true awakening moments tend to require sustained macro impulses rather than one-month spikes.
Ideally, if new orders remain in the mid-50s and there is some evidence that price pressures are easing, a single PMI result will not reprice the entire asset class unless we see movement in February, March, and beyond.
When strong growth becomes a headwind
For risk assets, strong growth potential can be bullish, as long as it does not imply higher interest rates over a longer period of time.
The price index of 59.0 indicates that input costs are still rising at a healthy level. At the same time, the Fed is keeping interest rates in the range of 3.50% to 3.75%, emphasizing that future decisions will depend on future data and the progress of inflation.
If investors interpret the return of growth to mean the return of inflation risk, Treasury yields and the dollar could rise. This has led to tighter financial conditions, putting pressure on assets that rely on low interest rates and abundant liquidity, including Bitcoin.
In recent years, BTC's behavior has increasingly resembled that of high-beta stocks. That is, they tend to perform best when real yields are lower, credit is easier, and liquidity is higher.
However, it will struggle if policies feel too tight.
This framework helps explain why Bitcoin did not respond positively to all the strong macro reports.
Under the current regime, increased activity could lead to fewer or delayed rate cuts, dampening the “risk-on” impulse that would otherwise impact cryptocurrencies.
“Bitcoin is not an economy”
Within the crypto community, the recent spike in PMI has reignited a long-standing debate about whether PMI valuations signal an imminent rise.
Andre Dagosh, head of European research at Bitwise, suggested that it would be naive to ignore the information embedded in the recent rise in precious metals and the reflation signals from ISM. His point is that similar PMI reversals in 2013, 2016, and 2020 have coincided with some of Bitcoin's strongest bull runs.
This view was echoed by Joe Barnett, vice president of Bitcoin strategy at Strive Asset Management, who noted that the move ended a 26-month losing streak and that previous breakouts of more than 50 have often been important turning points for BTC.
However, some people dispute this bullish theory.
Benjamin Cowen, founder of ITC Crypto, pointed out that treating ISM as a compass for Bitcoin's direction could be dangerous.
His preferred case studies are 2014 and 2015. In January 2014, ISM was around 52.5 while BTC was trading near $737. By December 2014, ISM had risen to about 55.7, while Bitcoin had fallen to about $302.
In January 2015, ISM was near 54.0 and BTC was around $322. By the end of the year, ISM had fallen to about 48.8, while Bitcoin had risen to about $429.
According to him, anyone who used ISM to predict Bitcoin's direction at the time would have been wrong twice. When ISM rose in 2014, BTC fell. When ISM fell in 2015, BTC rose.
Cowen's argument is that there is a good chance that a similar divergence will occur in 2026. The index was 52.5 in January 2014 and 52.6 in January 2026, indicating that the levels are almost the same.
He sees a realistic path for ISM to rise through 2026, with Bitcoin recording a red year, just as it did more than a decade ago.
Underwater in regulated wrapping paper
Cowen's argument is worth considering because Bitcoin is no longer just an offshore transaction vehicle. It is currently included in U.S. spot exchange-traded funds (ETFs) held in brokerage and retirement accounts.
These 12 listed products held approximately 1.29 million BTC, representing approximately 6.5% of the circulating supply, and attracted net inflows of approximately $62 billion at their peak.
Alex Thorne, Head of Research at Galaxy Digital, claimed that the latest drawdown has pushed the price of BTC about 7-10% below the average ETF creation cost, which he estimates at $84,000-$90,200.
On a dollar basis, ETF investors are facing about $7 billion in unrealized losses.
Unlike the initial self-custody holders, this cohort is comprised of advisors and institutional allocators who are subject to scrutiny by portfolio rules and risk committees. A 30%-40% decline in positions within the regulated wrapper will require difficult decisions at the end of the quarter.
Notably, ETF flows are already reflecting that pressure. January was the third worst month on record for U.S. Bitcoin spot ETFs, with net outflows of about $1.6 billion, according to data from Coinperps.
At the same time, on-chain data suggests that there is a “supply gap” in the $70,000-$80,000 range, that relatively few coins were last traded, and that most of the recent sell-off is due to a group buying near the highs above $111,000.
Two closely watched long-term cycle indicators, realized price and the 200-week moving average, are concentrated in the low $50,000s. Historically, these levels have represented strong entry points, while also being around 20%-25% below today's prices.
That is the tense situation that the ISM breakout is entering.
On the other hand, macro strategists like Raul Pal argue that an expansive PMI reading is a “necessary condition” to maintain the strength of cryptocurrencies, especially when combined with increased liquidity.
Meanwhile, actual market holders in the ETF era are staring at negative P&Ls and liquidity that is currently flowing in the wrong direction.
What's next for Bitcoin?
The real test is what happens when these two stories are out of sync. Imagine a year where Bitcoin climbs towards its realized price and 200-week moving average in the low $50,000s while ISM continues to rise, sub-indexes continue to perform well, and metals continue to trade like a reflation hedge.
For ETF issuers, this means selling macro-hedging products that underperform both the S&P 500 and the commodity it was intended to complement.
They will need to explain to their advisors why the “hedging” and “digital gold” narratives have not materialized in a time of real-world stress and reflation.
As a result, juxtaposing January's ISM data with Bitcoin's current structure shows three broad scenarios that stand out.
Goldilocks replenishment, the case for a bullish breakout
In the bullish case, the PMI remains above 50 for several months, new orders remain near or above 55, and the price index begins to decline from 59.0 towards the mid-50s. Growth looks solid, but inflation signals are calm enough that the market maintains expectations for a rate cut in the second half of 2026.
Stock prices will continue to rise, credit spreads will remain constrained, and real yields may fall.
In the case of Bitcoin, this combination, along with signs that selling by long-term holders has slowed and on-chain levels are approaching, such as the realized price near $56,000 and the 200-week moving average near $58,000, could finally reawaken bullish buying.
ETF outflows could stabilize or reverse, volatility could cause prices to rise again from compressed levels, and the overall setup would be similar to past risk-on phases that led to strong BTC gains.
Rapid growth accompanied by persistent inflation will be a macro headwind for BTC
In the second scenario, the PMI remains steady or even rises, while the price index stays around 59.0 or rises. The market has concluded that economic growth is strong enough to make the Federal Reserve cautious, and the expected path for rate cuts will shift to a lower magnitude or later date.
In such an environment, U.S. Treasury yields and the dollar would rise, financial conditions could tighten, and the opportunity cost of holding non-yielding, volatile assets could rise. While stock markets may continue to react positively for the time being, especially in cyclical sectors, Bitcoin will have to contend with a macroeconomic backdrop that hurts duration and speculation.
This setup makes it difficult for BTC to turn a solid PMI record into a sustained breakout, as ETF holders are already saddled with losses and risk committees are on alert.
False dawn, risk-off returns
In the third scenario, January's jump turns out to be temporary. If the boost from post-holiday reorders and tariff hedging wears off, and subsequent PMI readings revert toward below 50, the market could face a doom-and-gloom combination for crypto. Growth optimism is fading, but leverage has already been flushed and ETF outflows are already occurring.
Bitcoin is still working through the aftermath of the post-2025 peak, and the last time there was significant supply was between about $80,000 and $92,000, with an apparent “ownership gap” between $70,000 and $80,000.
In such a case, prices could move toward the 200-week moving average around realized prices of around $56,000 and $58,000, levels that have historically signaled cycle bottoms, but they would do so without the support of a convincing macroeconomic growth story.
