US midterms put Trump-era crypto boom and prediction markets at risk

The US midterm elections could reshape the regulatory landscape for crypto companies and prediction markets that have benefited from the Trump administration, with investors increasingly positioning for a potential Democratic takeover of Congress, Bloomberg reported.

A Democratic sweep of the House and Senate could bring tighter oversight of digital assets, renewed scrutiny of prediction markets and investigations involving President Donald Trump and his associates. The uncertainty is already weighing on investor sentiment towards crypto linked stocks.

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Options markets are reflecting growing caution. According to Bloomberg, demand for protection against a 10% decline in Coinbase shares relative to potential gains has climbed to its highest level since April. A similar measure for Strategy has reached its highest since June.

Crypto stocks face regulatory uncertainty

The concerns come after a difficult October for the sector. Coinbase shares fell 23%, while Galaxy Digital declined 30%, marking its worst monthly performance since 2022. Strategy and Bullish lost 15% and 32%, respectively. However, shares of these companies advanced on Tuesday as voting got underway, Bloomberg reported.

Investors are also reassessing the prospects of the Clarity Act, which aims to establish the Commodity Futures Trading Commission as the primary regulator of digital assets. Democrats, alongside some Republicans, blocked its advancement in September.

Also Read: Technology stocks lift S&P 500 as US midterm vote keeps investors on edge“Given what we expect the outcome from the midterm” to be, “I just don’t think the Clarity Act would come back in 2027,” said Owen Lau, an analyst at Clear Street.

Mark Palmer, senior equity research analyst at StoneX Financial, said the benefits crypto companies have received from regulatory changes may not last and would depend on election outcomes.

Prediction markets could also face scrutiny

A Democratic victory could also complicate the expansion of prediction markets, which have received federal support under Trump. Stricter oversight could benefit established exchanges such as CME Group and Cboe Global Markets over newer platforms operating in the sector, Bloomberg reported.

The industry is also facing questions over cybersecurity following the attempted $6.3 billion theft from Binance in October. Morgan Stanley analyst Michael Cyprys said the incident could invite greater regulatory scrutiny of cybersecurity, custody and customer asset protection.

However, a Democratic majority may not necessarily reverse the administration’s broader crypto friendly approach. Trump could continue supporting the sector and veto legislation that restricts his regulators.

For investors, the midterms could therefore mark the beginning of a longer reassessment of the regulatory outlook for digital finance, particularly as attention gradually shifts towards the 2028 presidential race.

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(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)