Bitcoin and Ethereum to plunge in September? Let’s forecast the stock and cryptocurrency markets for September.

Bitcoin and Ethereum have shown sharp declines, signaling that market sentiment is shifting rapidly. The turning point was the release of the latest Producer Price Index (PPI). Since then, investor attention has swung back to inflation and employment data. Until recently, the September FOMC rate cut and the upcoming Jackson Hole meeting were seen as the most important events. Yet as inflation expectations crumble, a series of overlapping risks are now unsettling markets. The chain reaction, which began with PPI, deserves closer examination.

1. The Gap Between PPI and CPI: Costs Absorbed by Producers

On August 14, the Producer Price Index (PPI) jumped 0.9% month-over-month, far exceeding expectations. But just two days earlier, the Consumer Price Index (CPI) came in at 2.7%, slightly below the forecast of 2.8%. This discrepancy means that companies are not passing on higher costs to consumers but instead absorbing them internally.

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This balance cannot last. If firms continue to shoulder costs, they will likely cut expenses elsewhere, especially in employment, raising unemployment rates. If they shift costs onto consumers, inflation risks will re-emerge. Either way, the economy faces growing pressure. What makes the situation more complicated is that much of the PPI surge stems from tariffs, and under Trump’s policy stance, tariffs are likely to remain in place for a considerable time. That means this imbalance is structural, not temporary.

2. Politicized Employment Data

Another layer of uncertainty comes from U.S. labor statistics. Recently, President Trump criticized published employment figures as politically manipulated and abruptly dismissed BLS Commissioner McEntee. He then appointed Anthony, a conservative economist from the Heritage Foundation, as the new head. This move all but ensures that the September jobs report will be viewed through the lens of political interference.

If the data shows improvement, markets may cheer momentarily but will quickly suspect “massaged” numbers. If, however, the report signals deterioration, investors may take it even more seriously since the new Trump-appointed commissioner would still be forced to acknowledge weakness. In both cases, the September jobs report is unlikely to provide durable market support.

3. The Fed’s Dilemma: A Rate Cut That Fails to Reassure

Against this backdrop, FedWatch now sees an 84% probability of a 25bp cut at the September FOMC. The problem lies not in the cut itself but in how markets interpret it.

If employment weakens and the Fed cuts rates, investors will see it as confirmation of recession risk—especially troubling if even Trump’s own appointee cannot disguise worsening conditions. If employment looks stable but inflation remains high, a rate cut may spark a short-lived rally on liquidity hopes, but inflation concerns will soon undermine confidence. In either case, the traditional equation of “rate cuts = market rally” no longer holds. Bonds may benefit, but equities face structural downside pressure.

4. Liquidity Constraints: TGA Refill and Reserve Drain

Compounding these challenges is the liquidity backdrop. In September, the Treasury must rebuild its General Account (TGA) to around $850 billion, requiring heavy debt issuance that drains cash from markets. In past cycles, the Treasury could rely on reducing the Reverse Repo Facility (RRP) balance to cushion the effect, but RRP is now nearly depleted.

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That leaves bank reserves as the only source to absorb the funding need. This means financial system liquidity will be directly restricted, leaving less capital available for risk assets such as equities and crypto. Even if the Fed delivers a rate cut, the tightening impact of TGA rebuilding will largely neutralize it. With inflation and employment uncertainty layered on top, markets are entering a zone of heightened instability.

5. Four Factors Defining September

September is now shaped by four overlapping pressures:

• Upward cost-push inflation from surging PPI

• Distrust in politicized employment data

• A Fed rate cut interpreted as weakness, not strength

• Liquidity drain from TGA rebuilding and reserve absorption

Together, these dynamics leave little room for equities or crypto to benefit. By contrast, the dollar and Treasuries are likely to attract flows as capital shifts away from risk assets into safer havens. Investors should expect volatility in risk markets to rise significantly.

Conclusion: A Time for Defensive Positioning

The recurring theme is clear: cash matters. In September, even if the Fed cuts rates, markets are more likely to interpret it as political interference or a response to worsening conditions than as a true positive catalyst. And with liquidity being drained rather than injected, risk assets will struggle to sustain any rebound.

The prudent strategy is therefore to prioritize defense—holding dollars, short-term Treasuries, and cash-like instruments—while waiting for the market to absorb these uncertainties. At K3 Lab, we see the turning point arriving only once the TGA balance is adequately rebuilt and inflation data shows renewed stability. Until then, September represents not an opportunity for risk-taking but a trap that calls for patience and long-term discipline.