Democrats win House and Senate in US midterms: Why isn’t all bad news for crypto

The biggest story this week was Tuesday’s US midterm elections, which saw Democrats win control of both the House and the Senate in a clear blue wave.

The results reflected US voters’ frustration with high prices and the state of the economy. That feeling helped Democratic candidates win even in areas that usually vote Republican.

This political shift in the US has triggered sharp price swings across the cryptocurrency market, as investors weighed the potential implications of a Democrat-controlled Congress, leading to extreme volatility and liquidations across risky assets this week.

Volatility triggers wave of liquidations

When major political news lands, the market reacts with extreme volatility. Bitcoin (BTC) briefly fell toward the mid-$75,000s as election results started coming out during the early Asian session on Wednesday, then climbed back once things became clearer and closed above $80,500, with nearly 4% gains that day.

However, this price was short-lived as it faced renewed selling pressure on Thursday, amid concerns that Democrats’ control of both chambers of the US Congress could lead to tighter crypto and Artificial Intelligence (AI) regulations. A sharp sell-off in US tech stocks on Thursday erased BTC's recent gains, with the Crypto King falling 5.49% and closing below the 200-day Exponential Moving Average (EMA) support around $76,534. 

Momentum also shows weakening signs, with the daily Relative Strength Index (RSI) around 37 and pointing down toward oversold conditions, indicating a strong bearish trend. Adding to this, the Moving Average Convergence Divergence (MACD) remains in negative territory, with rising red histogram bars further suggesting a bearish outlook for BTC.

BTC continues to trade in red on Friday, moving below $75,800 at the time of writing.

The volatile move in either direction after the midterms was expected, given the divergence between Bitcoin’s Chicago Mercantile Exchange (CME) futures and perpetual (perp) futures positioning, along with three-month implied volatility hovering near historic lows.

Over $2.25 billion in positions were liquidated from the crypto market amid the US midterm elections. Wednesday’s rebound triggered mostly short positions, while Thursday’s decline wiped out longs, as shown in the chart below. These liquidations signal a sharp shift in sentiment and highlight uncertainty and leveraged positioning across the sector.

Political gridlock could benefit crypto

Gridlock in Washington can actually help cryptocurrencies. With divided power between Congress and the White House, fewer major policy surprises can suddenly hit risk assets.

However, Democrats controlling both the House and Senate also raises a real warning for the crypto industry. It could stall or delay important related legislation such as the CLARITY Act. 

Prediction markets like Kalshi have already priced in a tougher path for industry-friendly bills, with the odds of the CLARITY Act passing before July 1, 2027 having fallen to 14%, down from 19% before the US midterm elections on November 1. 

The outlook has also weakened over longer time horizons. Over the same period mentioned above, the odds of the CLARITY Act passing before October 1, 2027 and January 1, 2028, have dropped to 18% and 23% from 27% and 29%, respectively.

Binance hack still lingers

Meanwhile, last week’s Binance hack is still in the background. Midterm election headlines have taken most of the attention, but security concerns remain.

So far, Binance is absorbing the full financial impact and has replenished 98% of the affected user balances through its own corporate treasury, SAFU fund, and other internal resources.

However, roughly $3 billion in stolen assets remains under the attackers’ control, mostly in BTC and ETH, which cannot be easily frozen. If these funds start moving again, that could bring fresh FUD (fear, uncertainty, and doubt) back into the market.

What does this mean for the crypto market?

Overall, the Democrats’ victory has added uncertainty to the industry, as investors assess the potential impact of a Democrat-controlled Congress on crypto and AI regulations when the new Congress convenes on January 3, 2027.

Despite this political shift in Washington, interest rate decisions, geopolitical developments in the Middle East, overall market liquidity and demand for Exchange Traded Funds (ETFs) are likely to play a greater role in driving crypto prices.