GM. This is Milk Road PRO, your business-cycle lie detector, celebrating ISM popping above 50 like it just found a pulse.
January hit hard.
Another $300B vanished, and our portfolios are still taking hits.
This keeps happening even though the bigger economic picture still looks pretty good, like we've talked about here.
But our macro expert Tomas pointed out something important: we should keep an eye on the Russell 2000.
If it keeps climbing higher, that's good for crypto markets. If not, then we might be in trouble. 🫣
The Russell 2000 was up 5% in January, showing some solid momentum and a possible shift in market sentiment.
It matters because it gives us a clear picture of how investors feel about taking on risk, and that includes crypto.
👉 When the index is climbing, it's usually a sign that confidence is coming back and people are more willing to put money into riskier bets.
At the same time, some analysts believe we’re starting to see money move away from the big tech giants in the Magnificent 7 and into smaller, more cycle-sensitive companies.
These smaller caps often react quicker to market shifts, and especially the ones leveraging AI to improve their profit margins are on the watchlists of many.
Right now, AI is getting most of the attention while blockchain is still flying under the radar.
But the core idea is similar. These are two major tech shifts that can help companies run better and become more profitable.
So far, it's AI that’s leading the way in public markets.
But we believe it's only a matter of time before blockchains get the same kind of recognition and start shaping the crypto space as well.
Are we naive? Not in the long-run.
A lot of people are wondering: why is crypto still falling when everything else is near all-time highs?
It's a good question.
Maybe we’re still seeing the aftershocks from October 10, and some big exchanges and large holders could keep selling.
Another angle is the broader market. Software stocks are getting hit hard, and if investors are pulling back from software, crypto gets dragged down too. After all, crypto is still “just” software.
But there may be a bigger issue underneath. If new money isn’t coming in, it could mean trust problems, unclear regulation, or simply not enough real investment opportunities to spark excitement again.
We’re not really sure about the first two, and they’re likely just short-term factors anyway.
The bigger question might be the third one. That could be the real issue, and it’s the one we want to address at the end today.
P.S. Oh, and we recorded the Market Pulse meeting we just had. If you want to hear our thoughts, you can check it out here.
Plus, we’ve got a big announcement coming up. Something we think you’ll really want to hear.
Since it gives you access to all the charts we share in these kinds of reports, plus even more insights. 😉
But for now, let’s jump into the charts that matter most right now.
The Business Cycle
The business cycle is the foundation of how we understand the trend and direction of markets – if you’re 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 January just hit, and they’ve provided a massive surprise.
The headline index climbed to 52.6, a significant jump from December’s 47.9 and well ahead of the 48.5 analysts were expecting. This marks the first month of expansion for the manufacturing sector after a grueling 12-month streak of contraction, effectively ending 2025’s slump with the highest reading we’ve seen since mid-2022.
This is a major shift in the narrative, suggesting the business cycle is finally shifting into a higher gear. The long-awaited recovery in manufacturing isn't just a theory anymore - it’s actually showing up in the data.
There are some seriously strong details under the hood, too:
- Production: This surged deeper into expansion at 55.9, up from December’s 51.0. It’s clear that factories aren't just "pushing out goods" anymore; they are actively ramping up to meet new demand.
- New orders: This was the star of the report, skyrocketing to 57.1 from December’s 47.7. A jump that large indicates a massive influx of demand that should keep the momentum going.
The ISM data has officially moved from "mixed" to "momentum-driven". We’ve been waiting for the sector to find its footing, and it seems to have happened all at once. It looks like the forecasted 2026 expansion is arriving right on time, likely supported by the anticipated tax policies and the tailwinds from AI-driven productivity gains.
Things are shifting quickly now, so we’ll be watching to see if this pace is sustainable through the quarter.
If the ISM Manufacturing PMI holds above 50, a strong bull market should follow.
Let’s 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 it’s rising - the better it is for risk-on assets like crypto.
We’ve had to weather a tighter liquidity environment for longer than we initially hoped, but the tide is finally turning.
As of early February 2026, the global liquidity landscape has shifted and is looking much more supportive:
- Major Asian economies: The PBOC in China has doubled down on its accommodative stance, pledging further cuts to reserve requirement ratios (RRR) and interest rates throughout 2026 to ensure ample liquidity for their internal recovery.
- The Federal Reserve: This is where the biggest shift has occurred. Quantitative Tightening (QT) is a thing of the past, having officially ended on December 1, 2025. The Fed has transitioned to "Reserve Management Purchases" (RMPs), currently adding approximately $40B per month to its balance sheet. This isn't emergency QE, but it is a structural expansion designed to meet the economy's natural demand for cash.
On the interest rate front, things are steadying. After a 0.25% cut in December that brought the federal funds rate to 3.50%–3.75%, the Fed chose to pause at the January 28th meeting.
The broader bias remains toward easing as the labor market weakens and Trump’s new chairman is expected to lower rates.
The bottom line: With Kevin Warsh now nominated to take over as Fed Chair in May, the market is already pricing in a more aggressive easing cycle for the second half of 2026. The pipes are filling again, and the structural drain that defined the last two years is effectively over.
Liquidity seems to be improving. Let’s talk about inflation.
BUT, before we continue, here is the big announcement: we just added a brand new section to the Milk Road PRO All Access Dashboard: Crypto Pulse.
You can now track revenues, top performers, ETF Flows, and even the Fear & Greed Index right in the Milk Road PRO website. We know it's a bit cheeky to launch it this week, but it just means we’ll be able to track that massive reversal together in real-time. Right?
Truflation
Instead of looking at traditional trailing inflation metrics, we’re turning to Truflation for a real-time view of what’s actually happening on the ground.
Truflation shows inflation isn’t just falling - it’s effectively cratering.
As of early February 2026, their real-time index has plunged to 0.86%, breaking significantly below the 2% target and suggesting that the "higher for longer" era is well and truly dead.
While we’re still waiting on the official January BLS report - which was delayed until February 13th due to the brief government shutdown earlier this month - the December data already confirmed a cooling trend. Headline CPI held steady at 2.7%, while the "Core" rate improved to 2.6%, the lowest reading since early 2021.
The specific drivers tell a clear story:
- Shelter: Still the primary headwind at 3.2%, though real-time data from Truflation suggests rent prices are finally starting to lead the official metrics lower.
- Goods: Concerns over tariffs haven't sparked a price surge yet. Costs for used cars (+1.6% YoY) and apparel (+0.6%) remain muted, helping keep the "Core" rate down.
- Energy/Food: We saw a significant spike in natural gas (+10.8%) and groceries, but this was largely neutralized by a sharp -3.4% drop in gasoline prices. (Energy independence-or just good timing-is paying off.)
The bottom line: With the Truflation lead indicator below 1% and official Core inflation at 2.6%, the "sticky inflation" narrative has lost its teeth. With Kevin Warsh now nominated to lead the Fed, the market is quickly shifting its focus from "how high?" to "how fast will they cut?" as the labor market begins to show more noticeable cracks.
Low inflation is bullish!
PERFORMANCE
Let’s see how some major investment classes have been performing.
The year started off strong, with crypto markets up more than 10% just two weeks in.
But by the end of the month, things turned ugly, and the market took a heavy hit.
Bitcoin ended the month down 11%, while large U.S. stocks (SPY and QQQ) finished slightly up with a gain of just over 1%.
But the broader U.S. market, tracked by the IWM (Russell 2000) index that covers 2,000 companies, did even better with a 5.5% jump.
👉 So once again, stocks stayed steady or up while crypto showed its usual wild swings.
But January wasn’t just about stocks and crypto.
Precious metals stole the spotlight, with gold and silver shooting up earlier in the month.
We can filter out everything else to focus just on gold’s performance over the past six months.
Gold, a $32T asset, made a massive 60% move during that time. That kind of run is rare.
We’re pointing this out because big moves like this tend to attract a lot of capital. In this case, about $20T. 🫣
But now, with Gold pulling back, we might start to see some of that money rotate out.
And if that happens, there’s a chance some of it could flow into Bitcoin and help kick-start the crypto market again.
Let’s take a look at how bitcoin has been performing compared to the rest of the crypto market.
Uh, Oh… 😧 The rest of this report is exclusive to Crypto PRO or PRO All Access members!
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WHAT’S LEFT INSIDE? 👀
- Why the altcoin season surprised us.
- Why is it important to understand crypto flows.
- What can we learn from Fear & Greed Index.
- How to take advantage of this crypto blood bath.
- What is on our watchlist.
Upgrade your subscription today to unlock access to all of the milky insights above, PLUS:
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