August Crypto Market Review: ETH Leads the Rise, Institutional Funds and Macroeconomic Factors Dominate Market Trends

Author: Jianing Wu, Galaxy Digital

Compiled by: Tim, PANews

In August, various cross signals emerged in the macro economy and the cryptocurrency market.

In the traditional market, investors face conflicting inflation signals: the CPI released at the beginning of the month was below expectations, but the subsequently released Producer Price Index (PPI) was above expectations. Meanwhile, the gradually weakening employment data and the market's increasing expectation that the Federal Reserve will begin cutting interest rates in September. At the Federal Reserve meeting held at the end of the month in Jackson Hole, Wyoming, Chairman Powell showed a dovish tendency, emphasizing the "risk balance changes" brought about by the rising unemployment rate, which reinforced expectations for a shift toward accommodative monetary policy. The stock market fluctuated but closed higher, with the S&P 500 index oscillating with the data release, while defensive assets like gold performed prominently at the end of the month.

The cryptocurrency market reflects this macro uncertainty, with increased volatility. Bitcoin reached a historic high of over $124,000 in mid-August, then fell back to around $110,000, while Ethereum outperformed Bitcoin with a monthly increase that exceeded it. After experiencing the largest single-day outflow for Ethereum ETFs at the beginning of the month, strong capital inflows quickly followed, and despite Ethereum's smaller market capitalization, its related product data briefly surpassed that of Bitcoin.

However, the recovery in demand has driven the ETH price close to $4953, setting a new high, and the ETH/BTC exchange rate has risen to 0.04 for the first time since November 2024. The fluctuations in ETF trading highlight that institutional position adjustments are increasingly influencing price trends, and ETH is clearly the leader in this cycle.

In terms of legal policy, regulators are gradually advancing reforms to reshape the industry landscape. The U.S. Department of Labor has opened the door for the allocation of crypto assets in 401(k) retirement plans; the U.S. SEC has clearly stated that certain liquid staking activities do not fall under the category of securities.

The application trends at the market structure and institutional level are further deepening. Finance Minister Besant disclosed for the first time that the strategic Bitcoin reserve holdings have reached between 120,000 to 170,000 coins, marking the first exposure of the government's accumulated crypto asset holdings. Corporate activities are accelerating simultaneously: stablecoin issuers Stripe and Circle announced plans to develop an independent L1 blockchain, Wyoming has become the first state government in the U.S. to issue a dollar stablecoin, and Google has also joined the enterprise-level blockchain competition with its "Universal Ledger" system. Meanwhile, crypto treasury companies continue to increase their asset allocation efforts.

Overall, August reinforced two major key trends. On one hand, macro volatility and policy uncertainty triggered severe fluctuations in the stock and crypto markets; on the other hand, from ETF fund flows to widespread adoption by sovereign institutions and enterprises, the deep trend of market institutionalization is accelerating. As the market enters autumn, these interacting forces may continue to dominate market trends, and the Federal Reserve's policy shift along with ongoing structural demand is likely to set the tone for the next phase of the cycle.

1. Surge, Breakthrough, and Reversal

In the first half of August, Ethereum led the market with a rise that surpassed Bitcoin, driving altcoins to generally increase. The Bloomberg Galaxy Crypto Index shows that on August 13, Bitcoin reached an all-time high of $124,496, followed by a reversal, ending the month at $109,127, lower than the $116,491 at the beginning of the month. A week later, Ethereum broke the previous cycle high on August 22, reaching $4,953, surpassing the November 2021 high of $4,866, ending a four-year consolidation.

Ethereum's strong performance is particularly noteworthy, as it has underperformed for much of this cycle. Since falling to around $1,400 in April, the price of Ether has more than doubled, driven by strong ETF inflows and purchases by crypto treasury firms. In August, the U.S. spot Ethereum ETF recorded a net inflow of about $4 billion, making it the second strongest month after July, whereas the U.S. spot Bitcoin ETF saw a net outflow of about $639 million.

However, despite the price decline in the last two weeks of August, Bitcoin ETF inflows turned positive. As expectations for aggressive interest rate cuts by the Federal Reserve intensified, the narrative of Bitcoin's store of value attributes regained focus. With the increasing likelihood of rate cuts, the correlation between Bitcoin and gold significantly strengthened that month.

Apart from ETFs, crypto treasury companies remain an important source of demand. These companies have continued to increase their holdings throughout August, with those focusing on Ethereum injecting a significant amount of capital. Since Ethereum's market capitalization is smaller than Bitcoin's, the influx of corporate funds has an extraordinary impact on spot prices. The market landscape changes that a $1 billion allocation can bring to Ethereum is far from comparable to the same amount allocated to Bitcoin. More importantly, there is still a large amount of capital among publicly disclosed crypto treasury companies that has not been deployed, which means that the market will see more positive developments in the future.

The total market capitalization of cryptocurrencies reached a historical high of $4.2 trillion this month, highlighting the deep connection between crypto assets and overall market trends. The warming expectations of interest rate cuts boosted the risk appetite in both the stock and crypto markets, while the inflow of ETF funds and the accumulation of corporate reserves have directly propelled BTC and ETH prices to new all-time highs. Despite market fluctuations approaching the end of the month, the multiple interactions of macro policy easing, institutional capital flow, and the demand for crypto treasury reserves still keep the crypto market at the core of the risk asset narrative.

2. Each company launches its own L1 public chain.

Regulatory benefits are giving companies more confidence to directly enter the crypto market. In late July, U.S. SEC Chairman Paul Atkins announced the launch of "Project Crypto," aimed at promoting the issuance and trading of stocks, bonds, and other financial instruments through on-chain methods. This initiative marks a key step towards integrating traditional market infrastructure with blockchain technology. Inspired by this, companies are breaking through the existing limitations of blockchain applications and are beginning to launch their own L1 networks.

In August, three major companies announced the launch of new L1 blockchains in succession. Circle launched Arc, an EVM-compatible blockchain that uses its USDC stablecoin as the native gas token. Arc features compliance and privacy functions, an integrated on-chain foreign exchange settlement engine, and will launch with a permissioned validator set. After acquiring stablecoin infrastructure provider Bridge and crypto wallet service provider Privy, Stripe launched Tempo, which is also EVM-compatible and focuses on stablecoin payments and enterprise applications. Google released the Google Cloud Universal Ledger (GCUL), a private permissioned blockchain focused on payments and asset issuance, supporting Python-based smart contracts and has attracted the Chicago Mercantile Exchange as a pilot partner.

The logic behind enterprises building blockchain can be summarized as value capture, control, and autonomous design. By owning the underlying protocol, companies like Circle do not need to pay third-party network fees and can profit directly from transaction activities. Stripe, on the other hand, can integrate its proprietary blockchain more closely with its payment system, developing new features for customers without relying on the governance mechanisms of other chains. Both companies view control as a key element of compliant operations, especially in the context of regulatory agencies strengthening scrutiny of illegal financial activities. Choosing to build L1 instead of L2 can avoid being constrained by other blockchain networks in terms of settlement or consensus mechanisms.

The reactions from the native crypto community are mixed. Many believe that projects like Arc and GCUL, while borrowing the technological standards of existing L1 chains, have inferior design quality and exclude Ethereum and other native assets. Critics point out that permissioned validators and enterprise-led governance models undermine decentralization features and user autonomy. These debates echo the failed wave of "enterprise blockchains" from the mid-2010s, where those projects ultimately failed to attract real users.

Despite the skepticism, the initiatives taken by these companies are still significant. Stripe processes more than $1 trillion in payments annually, capturing about 17% of the global payment processing market. If Tempo can achieve lower costs or provide better developer tools, competitors may be forced to follow suit. Google's entry indicates that large tech companies view blockchain as the next evolutionary level of financial infrastructure. If these companies can leverage their scale advantages, distribution capabilities, and regulatory resources in this field, it may have far-reaching impacts.

In addition to companies launching their own L1 chains, other developments have also reinforced the trend of economic activities migrating on-chain. U.S. Secretary of Commerce Gina Raimondo announced that GDP data will be published on public chains through oracle networks such as Chainlink and Pyth. Galaxy has tokenized its shares to test on-chain secondary market trading. These initiatives indicate that, despite ongoing debates about the appropriate balance between compliance and decentralization, companies and governments have begun to embed blockchain technology into core financial and data infrastructures.

3. Hot Trends: Crypto Treasury Companies

The trend of crypto treasury that we emphasized in our earlier report is still ongoing. Holdings of BTC, ETH, and SOL continue to accumulate, with ETH performing particularly well. The holdings data shows that the crypto treasury of ETH surged sharply throughout August, primarily driven by Bitmine's reserves, which increased from about 625,000 ETH at the beginning of August to over 2 million ETH currently. The holdings of SOL also show steady growth, while BTC holdings continue a slower but steady accumulation trend.

Compared to the capital flows of ETFs, the activities of crypto treasury companies appear relatively subdued. In July and August, the inflow of funds into ETFs was stronger than that of crypto treasury companies, and the cumulative balance of ETFs also exceeded the accumulated scale of crypto treasury companies.

As the premiums on cryptocurrency vault company stocks have shrunk significantly, this divergence is becoming increasingly apparent. Earlier this summer, the price-to-earnings ratio of cryptocurrency vault companies was far higher than their net asset values, but now the premiums have gradually returned to normal levels, indicating that stock market investors have become more cautious. The changes in stock prices are evident: KindlyMD (the parent company of Nakamoto) has fallen from nearly $25 at the end of May to around $5, while Bitmine has also dropped from $62 at the beginning of August to about $46.

In late August, reports emerged that Nasdaq might tighten its regulation on companies acquiring crypto treasury through stock issuance, leading to more apparent selling pressure. This news accelerated the market's sell-off of stocks from crypto treasury companies focused on Ethereum. In contrast, companies focused on Bitcoin (such as Strategy, formerly MicroStrategy, stock code: MSTR) were less affected, as their acquisition strategies relied more on debt financing rather than stock issuance.

4. Hot Trends: Altcoin Season

Another hot trend is the rotation of altcoins. Bitcoin's dominance has gradually declined from about 60% in early August to 56.5% by the end of the month, while Ethereum's market share has risen from 11.7% to 13.6%. Data indicates that funds are rotating from Bitcoin to Ethereum and other cryptocurrencies, which aligns with the strong performance of Ethereum ETFs and the inflow of funds into crypto treasury companies. Although Bitcoin ETF inflows have rebounded in the past few weeks, the overall trend remains unchanged: this cycle continues to expand into areas beyond Bitcoin, with Ethereum and altcoins gaining incremental market share.

5. Our views and predictions

As the market enters the last few weeks of September, everyone's attention is focused on the Federal Reserve. The weak labor market has strengthened expectations for a rate cut in the near term, and risk assets have once again rallied. The employment report emphasizes that the economic slowdown may be more severe than initially reported, raising questions about how much easing is needed to cushion the economy.

At the same time, the long end of the yield curve is sending warning signals. The persistently high 10-year and 30-year government bond yields reflect market concerns that inflation may be sticky, and fiscal pressures may ultimately force central banks to finance debt and spending through money issuance. The expectation of short-term interest rate cuts is driving a rebound in risk assets, but the tug-of-war between short-term rate cuts supporting the market and long-term concerns pushing yields and precious metals higher will determine the sustainability of this rebound. This contradictory situation has a direct impact on cryptocurrencies: Bitcoin is increasingly linked to gold as a value storage hedge, while Ethereum and altcoins remain more sensitive to changes in overall risk appetite.