Democrats take House and Senate in US midterms, but it’s not all bad news for crypto

Tuesday’s US midterm elections dominated this week’s news, with control of both the House and the Senate going to Democrats in a decisive blue wave.

The outcome revealed US voters’ dissatisfaction with high prices and economic conditions. This discontent carried Democratic candidates to victory even in traditionally Republican areas.

As investors assessed what a Democrat-controlled Congress might mean, the US political shift set off pronounced price fluctuations throughout the cryptocurrency market, bringing extreme volatility and liquidations across risk assets this week.

Market swings set off widespread liquidations

Major political developments can provoke extreme market volatility. As election results began to emerge early in Wednesday’s Asian session, Bitcoin (BTC) briefly slipped towards the mid-$75,000s. It subsequently recovered as the picture became clearer, ending the day above $80,500 with a gain of nearly 4%.

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

Technical momentum is also deteriorating. At around 37, the daily Relative Strength Index (RSI) is heading lower towards oversold territory, signalling a strong bearish trend. The Moving Average Convergence Divergence (MACD) adds to that picture: it remains negative, while expanding red histogram bars provide further evidence of a bearish outlook for BTC.

Losses have extended into Friday, with BTC trading below $75,800 at the time of writing.

A sharp post-midterm move in either direction had been anticipated, owing to the gap in positioning between Bitcoin futures on the Chicago Mercantile Exchange (CME) and perpetual (perp) futures, alongside three-month implied volatility sitting close to historic lows.

Crypto positions worth more than $2.25 billion were liquidated during the US midterm elections. As the chart below shows, Wednesday’s recovery primarily forced the liquidation of shorts, whereas Thursday’s sell-off wiped out long positions. The scale of these liquidations points to a marked change in sentiment, underscoring both uncertainty and leveraged exposure across the sector.

Crypto could gain from political deadlock

For cryptocurrencies, a Washington stalemate can prove beneficial. When Congress and the White House share power across political divides, risk assets face fewer sudden, significant policy surprises.

Yet Democratic control of the House and Senate also presents a genuine concern for the crypto sector. The passage of key industry legislation could be held up or delayed, 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 also deteriorated further out. During that same period, the probabilities of passage before 1 October 2027 and 1 January 2028 fell from 27% and 29% to 18% and 23%, respectively.

Binance hack continues to cast a shadow

Away from the election coverage, last week’s hack at Binance continues to loom in the background. Although midterm headlines have dominated attention, concerns over security have not gone away.

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

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

Crypto market faces uncertainty over the implications

The Democratic victory has, on balance, introduced further uncertainty for the industry. Investors are weighing how a Democrat-controlled Congress could influence crypto and AI regulation once the new Congress meets on 3 January 2027.

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