GM. This is Milk Road, where weāve got more flavor than your favorite potato chip variety.
2025 was a rollercoaster for crypto.
The total market cap took some wild turns, dropping to $2.3T at the low and hitting $4.2T at the high.
Thatās a 45% swing, which, letās be honest, isn't surprising in crypto. Volatility is just part of the ride.
What really stung, though, was the letdown:
- Everyone came into the year expecting big gains.
- The vibe was bullish.
- Macroeconomics looked promising.
š But instead, the market closed the year down 7%.
Not a massive drop, sure, but when hopes were that high, even a small red number hurts.
Expectations didnāt just miss the mark, they flipped the script.
Now 2026 is shaping up to be another promising year for crypto. š¤
But this time, people might approach it with a bit more caution.
Instead of jumping in headfirst, investors seem more thoughtful and selective about where they put their money.
Thatās actually a good thing. It shows the space is growing up.
And itās not just retail investors getting involved anymore.
It feels like institutions are stepping in and starting to take over.
š Crypto is becoming more appealing to the big, sophisticated players, and their growing presence is changing the game.
Itās now much clearer which types of projects are likely to attract this new wave of capital.
Unlike retail money, which often gets scattered across all kinds of hype, institutional capital tends to focus on fewer, stronger bets.
The noise is fading, and the real opportunities are starting to stand out.
Our approach has always been based on data and solid fundamentals.
Maybe we were just a bit ahead of the curve. But now, things finally seem to be lining up. More than ever, the outlook feels right, and this could be the year everything starts to click.
PS: Oh, and we recorded the Market Pulse meeting we just had. If you want to hear our thoughts, you can check it out here.
Alright, time to cut the talk and dive into the numbers. Letās see what the data is telling us.
The Business Cycle
The business cycle is the foundation of how we understand the trend and direction of markets ā if youāre new here, you can learn more about how the business cycle impacts crypto markets here.
The chart below shows the ISM, which gives us a look at where we are in terms of economic activity right now.
The latest ISM numbers for December came in at 47.9 - which is a further slide from 48.2 in November and significantly below the expected 48.3. This marks the 10th consecutive month of contraction for the sector, closing out a difficult year with the lowest reading of 2025.
Not exactly great news, and it suggests the business cycle isnāt picking up speed just yet. The contraction in the manufacturing sector doesnāt seem to be over yet.
There are still some bright spots in the data though!
Production stayed in expansion territory at 51.0, though it did cool slightly from November's 51.4. This indicates that factories are still pushing out goods, but at a slowing pace.
There was a slight uptick in New Orders as well, but itās still below 50 at 47.7.
The ISM data for right now remains mixed. We do expect this to pick up, but it hasnāt kicked up yet. Most analysts expect these struggles to turn into economic expansion in 2026, especially as things like tax cuts and AI driven productivity increases start to play out.
This could change quickly, so weāre watching this closely.
Letās look at liquidity next.
Global liquidity
Global liquidity tells us how much capital is flowing into the markets. And generally, the more liquidity, or the faster itās rising, the better it is for risk-on assets like crypto.
We have to admit, the liquidity situation has been tighter for longer than we were hoping.
However, thereās some good news here!
As of the time of writing, the global liquidity landscape has shifted from a period of draining to a phase of "stabilization and slow refill".
Especially, with the Federal Reserve.
Western economies are no longer actively draining cash, but the effects of years of Quantitative Tightening are still being felt.
Major Asian central banks, particularly in China, remain in an accommodative stance to support their internal growth.
The biggest news, however, is at the Federal Reserve. Quantitative Tightening (QT) officially ended on December 1, 2025. For the first time in years, the Fed has transitioned to a policy of "Reserve Management Purchases".
The Fed is projected to add roughly $45B per month to its balance sheet throughout 2026.
This isn't "all-out QE" to fight a crisis, but rather a structural expansion to keep up with the economy's natural demand for cash.
On the interest rate front, the Fed delivered a 0.25% cut on December 10th, bringing the federal funds rate to a range of 3.50%ā3.75%. While the "dot plot" suggests a slower pace of cuts for 2026, the bias remains firmly toward easing as the labor market cools.
The bottom line: We have officially turned the corner from "Liquidity Contraction" to "Liquidity Neutral/Expansion". While the road back to "easy money" is long, the pipes are starting to fill again, and the structural drain that defined 2024 and 2025 is over.
The market is not expecting another rate cut at the Fedās January FOMC meeting, especially after the DOJ sent the Fed some subpoenas. But thatās not a big concern for now.
Trumpās new Fed Chair will likely continue lowering rates later in 2026.
Liquidity seems to be improving, letās talk inflation.
Truflation
Instead of looking at traditional trailing inflation metrics, weāre turning to Truflation for a real-time view of whatās actually happening on the ground.
Truflation shows inflation is STILL falling. Which is good news.
The latest CPI data confirms a steady cooling trend. Decemberās headline CPI held firm at 2.7%, while the "Core" rate (excluding food and energy) improved to 2.6%, the lowest since early 2021.
Despite the missing October data caused by the government shutdown, the trend is clear:
- Shelter: Remains the primary headwind at 3.2%, though distortions from the shutdown won't fully clear until April.
- Goods: Costs for used cars and appliances are falling, suggesting that recent tariff concerns haven't hit consumer prices as hard as feared. YAY!
- Energy/Food: A spike in natural gas (+10.8% YoY) and groceries was offset by a significant drop in gasoline prices. (The U.S. might have slightly āacquiredā some oil recently.)
The bottom line: With core inflation at 2.6%, the "sticky inflation" narrative is weakening. The Fed appears comfortable for now, but with a cooling labor market, the pressure is shifting from fighting prices to supporting growth.
This is bullish, it gives the Fed room to be more stimulative! (Once they beat the allegations.)
PERFORMANCE
Letās see how some major investment classes have been performing.
The December kicked off with a bang, with crypto jumping 8% in just three days.
But by the end, gains cooled off, and the market finished up 2.5%, slightly trailing behind bitcoin, which closed the month with a 3% gain.
Still, it's been a while since crypto had a clear edge over other markets.
Gold inched up 1.7% in December, and U.S. stocks stayed mostly flat.
So while there was some excitement earlier in the month, the broader picture stayed pretty calm.
š We still think crypto has some catching up to do, and maybe we're starting to see the first signs of that.
That said, one month of slightly better returns isnāt enough to draw any big conclusions. Still, it's a step in the right direction and a positive signal to keep an eye on.
Uh, Ohā¦ š§ The rest of this report is exclusive to Crypto PRO or PRO All Access members!
Already a Crypto PRO or PRO All Access member? Log in here.
WHATāS LEFT INSIDE? š
- Why the altcoin season index is broken.
- What Fear and Greed is really telling us right now.
- What is the pattern we see across many charts?
- Where weāre allocating this monthās $1,000 investment and why.
Upgrade your subscription today to unlock access to all of the milky insights above, PLUS:
- Weekly reports to help you manage investments, allocate capital, take profits, and stay ahead in crypto š
- Weekly āWhere are we in the cycle?ā indicators to help you spot the bull market top before itās too late š
- Access to the PRO Community, where the Milk Road crew & 1000s of fellow PROs talk crypto. Donāt miss the monthly live events! š«
Already a Crypto PRO or PRO All Access member? Log in here.
WHAT CRYPTO PRO MEMBERS SAID LAST WEEK:
