PMI Expansion vs. Crypto Volume Collapse: A Flow Disconnect

The traditional economy is showing a clear, if fragile, sign of life. The ISM Manufacturing PMI rose to 52.6 in January, marking its first expansion in 12 months. This 4.7-point jump from December's 47.9 ended a streak of 26 consecutive months of contraction, with the new orders sub-index hitting a notable 57.1. The rebound was broad-based, with production, employment, and supplier deliveries all improving.

Yet the underlying confidence remains subdued. The survey data reveals a sector reordering after the holidays and buying ahead of potential price hikes tied to trade policy, rather than a broad strategic upswing. As one analyst noted, "manufacturers still complaining about the uncertainty wrought by a fluid trade policy". This caution is echoed in the commentary, with firms citing "anti-American buyer sentiment" and difficulty planning due to tariff threats.

The bottom line is a flow disconnect. While the PMI's jump signals a near-term uptick in factory activity, the persistent uncertainty around trade and the still-contracting employment index suggest the momentum may not be sustainable. For now, the macro flow is shifting, but the direction remains unclear.

The Crypto Flow: Liquidity Drying Up

The crypto market is experiencing a severe contraction in activity, signaling a clear disengagement from investors. Spot trading volume on major exchanges has fallen by about half, dropping from around $2 trillion in October to roughly $1 trillion by late January. This collapse brings volumes back to levels seen in 2024 and is widely interpreted as a direct signal of weakening investment demand.

Bitcoin's price action has been amplified by this thinning liquidity. The asset has fallen about 37% from its October peak, with recent moves showing how structurally thin order books can exaggerate swings. For instance, Bitcoin briefly broke support below $75,000 before a quick V-shaped recovery, a pattern underscored by forced liquidations and shallow market depth.

The liquidity drought extends beyond spot volumes. Stablecoin outflows from exchanges and a ~$10 billion decline in total stablecoin market cap indicate a broader withdrawal of near-term buying power. This drying up of on-chain liquidity coincides with a risk-off mood across global markets, turning what was a correction into a more pronounced selloff.

The manufacturing rebound offers modest macro stability but is not a direct catalyst for bitcoin. The asset is driven largely by leverage, positioning, and shallow market depth, not by fundamental economic shifts. As one analyst noted, "bitcoin's price remains driven largely by leverage, positioning and shallow market depth rather than by fundamental economic shifts." The recent PMI expansion provides background context but lacks the direct liquidity or policy channels to ignite a crypto rally.

The key crypto watchpoint is whether Bitcoin's price breaks below $74,000. This level is critical as a recent test point for support. A confirmed break below it could signal a deeper bear market phase, triggering further forced liquidations and amplifying downside moves in a structurally thin market. The recent V-shaped recovery from that level underscores the fragile balance between dip buyers and forced sellers.

Monitor stablecoin outflows and exchange liquidity for signs of deeper market stress or eventual capitulation. The market is already showing clear disengagement, with spot trading volumes halving and stablecoin outflows from exchanges indicating a withdrawal of near-term buying power. If these outflows accelerate, it would signal a broader retreat from the market, potentially leading to a final capitulation before a bottom can form.