U.S. midterm elections are happening today, and the results will be hugely important to crypto.
While a Republican win is generally thought to be more favorable to the space, crypto enthusiasts tend to resist party distinctions.
The midterms also fall on a day in which the crypto market have been rocked by Binance’s planned acquisition of FTX.
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The United States is voting in critical midterm elections, and crypto fans are watching closely.
Americans have hit the polls today for a critical midterm election.
The House, a third of the Senate, 31 gubernatorial seats, and countless state and local offices are up for grabs today. The results will likely have a significant bearing on the direction of crypto regulation and on countless other decisions that could also influence crypto markets.
The 2022 midterms are expected to have an outsized impact on the U.S. political landscape compared to previous midterm elections. Amid rising inflation, the ever-present dread of recession, anxieties over electoral integrity, deep divisions over identity politics and key social issues, the intensely-divided population is vying for critical levers of power at all levels of government.
While U.S. crypto enthusiasts typically resist traditional party distinctions, there is some consensus that a Republican Congress may be more bullish for the industry than continued Democratic control in the House (the Senate, in practice, always requires a 60% supermajority approval vote to surpass the threat of filibuster, is effectively locked in stalemate until one party can break that number or seats).
Democrats tend to be more publicly critical of cryptocurrencies and digital assets more broadly speaking. Senator and 2020 presidential candidate Elizabeth Warren (D-MA) is among the Party’s most notorious crypto critics, once likening the technology to “snake oil” in 2021. Perhaps the only other Democrat in Congress whose distaste for crypto assets surpasses Warren’s is Representative Brad Sherman (D-CA), who once called for the outright banning of cryptocurrency before admitting this fall that that ship had sailed.
Nevertheless, some Democrats favor advancing favorable crypto regulation and have made efforts to collaborate with Republican crypto advocates, who tend to exceed Democratic advocates in number. Most notable among these is a piece of bipartisan legislation put forward by Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY).
Anticipating Market Moves
Markets have historically rallied off the back of the midterm elections. According to data compiled by Capital Group, RIMES, and Standard and Poor’s, the S&P500 has made average gains of 6% between September and December in election years since 1931.
This year, however, could be different. Markets do not like uncertainty, and there is substantial reason to expect confusion and disinformation to spread on social media as the polls close. Furthermore, an unprecedented number of election deniers are currently running for office at every level of government; some have even indicated that they may refuse to accept the results if they do not win.
Therefore it would not be surprising to see confusion and discord over the next few days about who will control the next Congress, and the markets—crypto included—likely will not respond well to that.
Nevertheless, it’s widely believed that a clear Republican win could be more positive for the crypto space, at least in the short term. Prominent Republican Senators like Pat Toomey (R-Pa.) and Lummis have shown a keen interest in supporting Bitcoin, and while there are also pro-Bitcoin Democratic Senators, Republicans have more recently been recognized as the more crypto-friendly party.
Additionally, many crypto enthusiasts argue that the Biden Administration has been a negative force in the crypto space over the past year. In March, President Biden signed an Executive Order on “Ensuring Responsible Development of Digital Assets,” calling for increased oversight of the industry; the White House published its first crypto regulatory framework report in September. During Biden’s tenure, a number of strict regulatory actions have been taken against a previously free-for-all industry, including the Treasury’s sanctioning of Tornado Cash, the CFTC’s lawsuit against Ooki DAO, and the SEC’s increasing willingness to declare tokens securities.
Furthermore, inflation has soared under Biden’s administration as the Federal Reserve struggles to combat the worst effects of quantitative easing during the COVID-19 pandemic. It’s widely argued that the excessive injection of cash into the economy from emergency spending is the main culprit, spurring the Fed to raise interest rates this year aggressively.
This, however, has caused its own problems, as contractions in markets everywhere have inevitably resulted. With the macroeconomic backdrop still looking weak and a possible recession looming, many investors have placed hopes on a change in government to turn the market around.
What to Watch For
Election Day 2022 may also go down in the crypto history books for other reasons as well.
The entire market has been shaken today by the news FTX.com would be acquired by Binance after days of speculation over liquidity problems. FTX’s native token, FTT, has collapsed, and an unknown degree of contagion currently appears to be creeping through the markets. Bitcoin has set new yearly lows today, briefly touching $17,579. Ethereum has also suffered, dropping 14% on the day to $1,329.
Therefore it seems unlikely that anything that happens over the next 24 hours will miraculously turn the market around. But that doesn’t change the fact that the next Congress will be critical to deciding the industry’s long-term future, and it could go in one of several very different directions.
Results are not expected until late this evening at the earliest; some vote counts, however, may take several days to certify. As social media can be rife with disinformation, readers are encouraged to corroborate any results circulating on such platforms by checking with multiple reputable sources before accepting potential disinformation.
Disclosure: At the time of writing, the authors of this piece owned BTC, ETH, and several other crypto assets.
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