Wondering if it is possible to have a rear dynamo powered light be able to function in a blinking mode?
Don't see why not. You could DIY the entire lamp with a 555 timer, a few fixed resistors, a variable resistor (a potentiometer, to vary the blinking speed) and a small cap, plus enough red LEDs to make up the correct voltage in a series-parallel arrangement. Here's a very simple way of doing it (this fellow is making blinking turn signals but the principle is the same).
https://www.youtube.com/watch?v=F6S0qif2C1wHere's another guy with a good practical demo of a variable blinking speed board.
https://www.youtube.com/watch?v=NiICy5Ia8lEIn each case your dynohub stands in for the battery.
But you can probably buy a good German battery blinky (they do sell them, as they're legal for road bikes in Germany) for less than the cost of the components to DIY it, and just run it beside your standard lamp or attached to your jacket or helmet.
Personally, I would just buy a red blinky battery torch from China because it already has the circuit built in and above all has a waterproof case, fit it near my BUMM Toplight Line Plus to a seat stay or the rack with a fishmouth, and arrange to deliver dynohub power to it. I use such a small torch, powered by a 3.7V 18650 battery, as a front white blinky next to a BUMM CYO and it is eminently satisfactory. It's just too much hassle and wiring to deliver dyno power to it.