Democrats win House and Senate in US midterms: Why might crypto still find positives?

Political uncertainty dominated the week’s market backdrop following Tuesday’s US midterm elections, in which a decisive blue wave handed Democrats control of both the House and the Senate.

The outcome underscored US voters’ dissatisfaction with elevated prices and economic conditions. Democratic candidates benefited from that sentiment even in constituencies that traditionally favour Republicans.

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

How has volatility fuelled the liquidation wave?

Major political developments can provoke exceptionally volatile market reactions. As election results began emerging in Wednesday’s early Asian session, Bitcoin (BTC) briefly slid towards the mid-$75,000s. Greater clarity subsequently helped it recover to close above $80,500, recording a gain of nearly 4% for the day.

Yet this price 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) regulations. A steep decline in US technology shares on Thursday wiped out BTC’s recent advance. The Crypto King lost 5.49%, ending below support at the 200-day Exponential Moving Average (EMA), around $76,534. 

Technical momentum is deteriorating as well. At around 37, the daily Relative Strength Index (RSI) is heading lower towards oversold territory, signalling a strong bearish trend. Reinforcing that negative outlook for BTC, the Moving Average Convergence Divergence (MACD) remains below zero while its red histogram bars continue to grow.

Friday has brought further losses for BTC, which is trading below $75,800 at the time of writing.

A sharp post-midterm swing in either direction had been anticipated, considering the gap between positioning in Bitcoin’s Chicago Mercantile Exchange (CME) futures and perpetual (perp) futures, alongside three-month implied volatility trading close to historical lows.

The crypto market recorded more than $2.25 billion in position liquidations during the US midterm elections. As the chart below illustrates, Wednesday’s recovery primarily liquidated shorts, whereas Thursday’s sell-off wiped out long positions. The liquidations point to a pronounced change in sentiment, underlining both uncertainty and the extent of leveraged positioning across the sector.

Could political gridlock support crypto?

Cryptocurrencies could, in fact, benefit from a policy stalemate in Washington. When Congress and the White House share power across political divides, risk assets face fewer sudden shocks from major policy surprises.

At the same time, Democratic control of the House and Senate presents a significant warning for the crypto sector. It could hold up or postpone key legislation affecting the industry, including the CLARITY Act. 

A more difficult route for industry-friendly legislation is already reflected in prediction markets such as Kalshi. The probability of the CLARITY Act passing before 1 July 2027 has declined to 14%, compared with 19% before the US midterm elections on 1 November. 

Expectations have deteriorated across longer time frames too. During the same period, the probability of the CLARITY Act passing before 1 October 2027 fell from 27% to 18%, while the odds of passage before 1 January 2028 declined from 29% to 23%.

Does the Binance hack still pose a risk?

Beyond the election news, last week’s hack of Binance continues to linger in the background. Security worries persist even though midterm election coverage has dominated attention.

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

Nevertheless, approximately $3 billion in stolen assets is still controlled by the attackers. Most of these holdings are in BTC and ETH, which are not easily frozen. Any renewed movement of these funds could trigger another bout of FUD (fear, uncertainty, and doubt) in the market.

Which factors could shape the crypto market now?

For the industry, the Democratic victory has increased uncertainty. Investors are weighing how a Democrat-controlled Congress could influence crypto and AI regulations when the new Congress assembles on 3 January 2027.

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