September Newsletter: ETH Flows, DATs and Predicition Markets

Summary:

August broke the seasonal trend as crypto markets turned red despite post-halving history. Ethereum outperformed Bitcoin thanks to a tidal wave of Digital Asset Treasury and ETF inflows, while prediction markets returned to the spotlight with renewed regulatory backing. We also track the rise of prediction markets, DATs, and the policy shifts shaping crypto’s next cycle.

This Month’s Market Signal

ETH surges on DAT flows as BTC stalls in red

TL;DR

• Why this matters: The biggest capital rotation of the cycle is underway, favoring ETH over BTC.

• Key stat: ETH ETFs pulled in $3.9 billion of inflows in August, while BTC ETFs saw $749 million of outflows.

• What to watch: Whether Solana and RWA tokens can catch the next rotation wave.

Macro and Seasonality

August broke the script. Historically, post-halving Augusts have been green for crypto, but 2025 closed red. September has long carried the stigma of the “September Effect,” a phenomenon across asset classes linked to portfolio rebalancing after summer. However, this year, institutional flows are lighter, while retail flows dominate, leaving open the question of whether the seasonal dip will actually materialize.

Retail-driven ETF inflows have climbed all year, with a parabolic acceleration since April. Institutions, by contrast, have trimmed exposure. This divergence flipped August market behavior on its head: many retail investors assumed September would be bearish and front-ran the selloff in late August, amplifying the decline into Jackson Hole.

When Powell’s speech turned out less hawkish than feared, markets bounced hard. September could play out similarly: a grind lower until one macro catalyst flips sentiment. This week alone brings ISM data, jobs reports, and unemployment figures—each capable of jolting markets. Weak data means the Fed is more likely to cut, a bullish setup for crypto. Strong data would do the opposite.

The macro stage is set for volatility. Everyone is positioned short. That means one upside surprise could spark a violent short squeeze.

The DAT Attack: ETH’s New Flywheel

For the second straight month, Digital Asset Treasuries (DATs) stole the spotlight. Combined with ETFs, they poured more than $10 billion into ETH during August. That follows nearly $10 billion in July. ETH gained 19% on the month while BTC fell 6%, the widest gap in years.

The structural bid has sparked talk of whether ETH can follow MicroStrategy’s Bitcoin playbook and build its own “MSTR stratosphere.” BMNR and SBET have led the charge, but PIPE unlocks loom. If retail or secondary buyers step in to absorb those shares, the DAT flywheel could accelerate.

The question is how much dry powder remains. Convertibles and preferred equity structures have not yet been tapped, leaving new capital avenues open. But scale matters. NAVs must grow for DATs to issue debt at size. Until then, ETH’s rally remains tethered to equity market performance.

Next up? Solana-focused vehicles from Multicoin and Pantera. If they gain traction, SOL could repeat ETH’s summer surge. Other contenders like SUI or DOGE look less likely, but the pipeline is expanding.

Regulation: From GENIUS Act to Market Structure

The GENIUS Act, passed in July, cemented a regulatory framework for U.S. payment stablecoins. Ethereum, home to the largest share of stablecoin activity, rallied 50% in July and held gains into August.

Momentum continued in August as regulators shifted tone. Fed governors Waller and Bowman attended a blockchain conference in Jackson Hole, a signal of normalization. The Senate Banking Committee is preparing to take up broader crypto market structure legislation in September, building on the CLARITY Act’s bipartisan momentum in the House.

The biggest open question: whether lawmakers will extend protections to open-source developers and non-custodial service providers. That fight will determine whether regulation cements crypto’s open infrastructure or tilts toward a more financialized model.

Other News and Narratives

Prediction Markets: From Fringe to Mainstream

Crypto Twitter declared August “the month of prediction markets.” Hype outpaced adoption, but the trend is real. Volumes on Polymarket remain 50% below their 2024 election peak, yet well above year-ago levels. Sustained usage points to a sticky base, not a bubble.

Regulatory winds shifted too. The CFTC dropped lawsuits against Kalshi and Polymarket, and incoming chair Brian Quintenz has endorsed event contracts as “hedging tools.” Political ties run deep: Trump Jr. advises both Kalshi and Polymarket, while Robinhood integrated Kalshi’s NFL markets this month. Polymarket also re-entered the U.S. by acquiring QCX for $112 million.

New entrants are experimenting with models that embed markets into news feeds (Myriad), bots (Prediqt), and DeFi integrations (GondorFi). Liquidity remains the gating factor. If incentives and integrations can scale, prediction markets may become the “new memecoins”—a cultural onramp with real staying power.

Linea TGE and Ecosystem Incentives

Linea confirmed its token launch for September 10, with 85% of supply directed to ecosystem growth and no allocation for the team or VCs. Its new “Ignition” incentive program will distribute 1 billion LINEA tokens across Aave, Etherex, and Euler using Brevis’ zk-powered verification to ensure transparent, low-cost rewards.

Paradigm’s Tempo L1 Launch

Paradigm and Stripe unveiled Tempo, a payments-focused Layer 1 built to avoid dependence on Ethereum’s roadmap. Currently in private testing, Tempo already counts Visa, Deutsche Bank, Shopify, and OpenAI among its design partners, positioning itself as a neutral base layer for global stablecoin payments.

Hyperliquid Stablecoin Vote

Hyperliquid will launch its native stablecoin, USDH, via an on-chain validator vote. Once approved, validators will deploy the stablecoin contract, reducing reliance on third-party issuers. The network also plans an 80% fee reduction on selected trading pairs.

Sonic Labs Capital Markets Push

Sonic Labs passed its first governance proposal to expand $S into U.S. markets. Plans include Nasdaq DAT integration, regulated ETPs/ETFs, and a dedicated U.S. entity. BitGo will serve as custodian for the new financial products.

Jito Tokenomics Overhaul

Jito announced a four-part update to JTO economics, including a $1 million buyback program, doubling the DAO’s block engine revenue share, and launching a live Token Economics Hub. The first tokenholder meeting is set for September 24.

CryptoEQ Takeaway

Flows, not narratives, are driving this market. In August those flows favored ETH over BTC. September brings catalysts that could flip sentiment on a dime. In a crowded trade, awareness and discipline are the real edge.