Author: Yang Chen, Wall Street View

The digital financial regulatory dividends formed since Trump's administration are facing direct impacts from the midterm elections. As American voters enter the polling stations on Tuesday, some investors have begun to preemptively adjust their strategies in anticipation of tightened regulations following a Democratic victory.

Options market data shows that the cost of bearish protection for crypto-related stocks continues to rise. The cost of protection against a 10% drop in Coinbase over the next month has reached its highest level since April; similar metrics from Strategy are at their peak since June.

Meanwhile, two ETFs tracking crypto-related stocks—the Global X Blockchain ETF and the Amplify Blockchain Technology ETF—saw net outflows last month.

The core logic of market concerns is: If the Democrats simultaneously take both the House and Senate, the regulatory environment for crypto and prediction markets is likely to tighten, and Trump and his associates may also face a wave of congressional inquiries.

Mark Palmer, an analyst at StoneX Financial, stated, "The market has realized that some of the benefits crypto companies gained from SEC and CFTC regulatory adjustments are not permanent, and their trajectory depends on the election results." He pointed out that while the risk from the elections has been somewhat digested, if the Democrats secure the House by a significant margin, crypto stocks may experience an immediate negative reaction on Wednesday.

The pressure on the crypto sector has already been reflected in October's data. Coinbase's stock price plummeted 23% that month, while Galaxy Digital dropped 30%, marking their worst single-month performance since 2022; Strategy and Bullish fell by 15% and 32%, respectively. After voting began in the U.S. on Tuesday, these stocks rebounded, with Coinbase rising 6% and Galaxy Digital surging 13%.

The 'Clarity Act' Blocked, Legislative Prospects Clouded

In September, the Democrats joined forces with a few Republican lawmakers to block the progress of the 'Clarity Act', which was originally intended to transfer primary regulatory authority over the digital asset industry to the Commodity Futures Trading Commission (CFTC). Following the blockage of the bill, stocks such as Coinbase and Circle Internet Group saw significant declines.

Clear Street analyst Owen Lau commented, "Considering the anticipated results of the midterm elections, I don't think the 'Clarity Act' will return to the agenda before 2027, and some impacts may have already been absorbed by the market."

If the Democrats win both the House and Senate, Senator Elizabeth Warren is expected to become the chair of the Senate Banking Committee—which has legislative oversight over crypto and digital assets.

TD Cowen analyst Jaret Seiberg wrote in a report at the end of October that this would be "the most unfavorable election outcome for the crypto industry, as Warren is a skeptic of crypto and a leading force against the 'Clarity Act'."

However, Seiberg also noted, "Warren cannot stop regulators from implementing policies favorable to the crypto industry," while Trump is likely to continue supporting the sector and veto any legislation that restricts the powers of regulatory agencies.

Binance Suffers Largest Hack in History

The crypto industry faced another blow in late October. Hackers stole $6.3 billion from the crypto exchange Binance, marking the largest theft in crypto history.

Morgan Stanley analyst Michael Cyprys wrote in a client report that this high-profile hacking event could trigger "stricter regulatory scrutiny over cybersecurity, asset custody, operational security, and client asset protection."

Crypto companies like Coinbase, Bullish, and Circle have been actively expanding into new businesses such as tokenization and prediction markets in recent years to reduce their reliance on pure crypto trading, but their revenue sources still primarily depend on crypto operations, making it difficult to completely avoid the impacts of regulatory uncertainties.

A Democratic Victory May Favor Traditional Exchanges

If the Democrats secure a majority, the beneficiaries may not be crypto newcomers but rather established exchanges like Cboe Global Markets and CME Group.

Analysts believe that a stricter regulatory environment will favor established institutions with comprehensive compliance systems rather than emerging platforms with lower regulatory standards. Last month, Cboe received approval from U.S. regulators to become the first exchange authorized to list options contracts linked to the performance metrics of listed companies.

In the prediction market sector, currently enjoying strong federal policy backing under the Trump administration, a Democratic victory may also face regulatory pressure and legal challenges.

Points of Attention: How Will the Democrats Prioritize Their Governance?

Several analysts have pointed out that if the Democrats come to power, the order of their governance priorities will largely determine the actual trajectory of the digital finance industry.

Hyunsu Jung, CEO of Hyperion DeFi Inc., stated that the field of digital innovation is in a rapid development phase, but the new majority party may prioritize issues like rising inflation and the Middle East conflict while allowing the CFTC and SEC to continue their rule-making.

Justin Slaughter, a senior advisor at investment consulting firm Paradigm, shares a similar view: "The choice facing the Democrats is whether to focus their efforts on a few hard battles or to launch a全面 attack?"

Palmer from StoneX extended his view further. He stated that as the midterm elections of 2026 conclude and the competition for the presidential election in 2028 enters a substantial phase, the market's scrutiny and speculation regarding different candidates' crypto policy positions will significantly intensify, "the controversies and speculations surrounding the crypto space will be quite considerable for both parties."

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