US midterms: Why wins for Democrats in House and Senate aren’t all bad for crypto

Tuesday’s US midterm elections dominated the week’s news, with Democrats taking both the House and the Senate in a decisive blue wave.

The outcome underscored US voters’ dissatisfaction with elevated prices and economic conditions. That discontent carried Democratic candidates to victory even in traditionally Republican areas.

The change in the US political landscape has set off steep price fluctuations throughout the cryptocurrency market. Investors assessed what a Democrat-controlled Congress could mean, fuelling extreme volatility and liquidations across risk assets this week.

$2.25 billion-plus liquidated as volatility surges

Nearly 4% was Bitcoin’s (BTC) gain on Wednesday. As election results emerged in early Asian trading, BTC initially dipped towards the mid-$75,000s before recovering as the picture became clearer, ending above $80,500. The swings illustrated the extreme volatility that major political developments can generate.

Yet this level proved unsustainable as selling pressure returned on Thursday, with investors concerned that Democratic control of both chambers of the US Congress could bring stricter cryptocurrency and Artificial Intelligence (AI) regulation. A steep decline in US technology shares on Thursday wiped out BTC’s recent advance. The leading cryptocurrency lost 5.49%, closing beneath support at the 200-day Exponential Moving Average (EMA), around $76,534. 

Technical momentum is also deteriorating. The daily Relative Strength Index (RSI), at around 37, is heading lower towards oversold territory, signalling a strong bearish trend. The Moving Average Convergence Divergence (MACD) is still negative, while expanding red histogram bars reinforce the bearish outlook for BTC.

At the time of writing on Friday, BTC remains lower, trading below $75,800.

A sharp post-midterm swing in either direction had been anticipated, reflecting the gap between positioning in Bitcoin’s Chicago Mercantile Exchange (CME) futures and perpetual (perp) futures. Three-month implied volatility was also close to historic lows.

More than $2.25 billion in cryptocurrency positions were liquidated during the US midterm elections. As the chart below shows, Wednesday’s recovery primarily liquidated shorts, before Thursday’s sell-off wiped out long positions. The liquidations point to an abrupt change in sentiment, underscoring uncertainty and leveraged exposure across the sector.

Crypto may gain from Washington gridlock

For cryptocurrencies, political deadlock in Washington can be helpful. When Congress and the White House share power, risk assets face fewer sudden, major policy surprises.

Nevertheless, Democratic control of the House and Senate presents a significant risk for the crypto sector. It could hold up or postpone key industry-related legislation, including the CLARITY Act. 

14% is now the probability of the CLARITY Act passing before 1 July 2027, according to prediction markets such as Kalshi. That compares with 19% before the US midterm elections on 1 November, reflecting a more difficult route for industry-friendly legislation. 

Prospects have deteriorated over longer horizons as well. During the same period, the probability of passage before 1 October 2027 fell from 27% to 18%. For passage before 1 January 2028, the odds declined from 29% to 23%.

Binance hack remains an overhang

At the same time, the previous week’s hack at Binance continues to weigh in the background. Election coverage has dominated attention, without removing the security concerns.

Binance has so far taken on the entire financial impact and has restored 98% of affected user balances using its corporate treasury, SAFU fund and other internal resources.

Nevertheless, about $3 billion in stolen assets is still controlled by the attackers. Most is held in BTC and ETH, which are not easily frozen. Renewed movement of those funds could reignite FUD (fear, uncertainty, and doubt) across the market.

Crypto faces regulatory uncertainty after the vote

3 January 2027 marks the convening of the new Congress. Investors are weighing how Democratic control could affect cryptocurrency and AI regulation, with the party’s victory increasing uncertainty for the industry.

Even with Washington’s political realignment, crypto prices are likely to be influenced more by interest rate decisions, developments in the Middle East, broader market liquidity and demand for Exchange Traded Funds (ETFs).