Impact of the U.S. Midterm Elections on the Cryptocurrency Market and Key Points to Watch

Impact of the U.S. Midterm Elections on the Cryptocurrency Market and Key Points to Watch

On November 3, 2026, midterm elections will be held in the United States.

This election is a significant event that will influence the future policy direction of a potential second Trump administration and the balance of power in the U.S. Congress. It is also closely watched in the cryptocurrency market for its implications on regulation, taxation, and financial market impacts.

In particular, the fate of the "CLARITY Act," which aims to establish a regulatory framework for cryptocurrencies, and the trends in the U.S. stock, interest rate, and foreign exchange markets following the election results could affect the pricing of Bitcoin (BTC) and other cryptocurrencies.

This article will outline the basic mechanisms of the U.S. midterm elections and discuss the potential impacts on cryptocurrency-related policies and the Bitcoin market from both short-term and medium-to-long-term perspectives.

1. What are the U.S. Midterm Elections? Focus on Changes in Congressional Power

The U.S. midterm elections are large-scale federal elections held halfway through the presidential term (the second year). All 435 seats in the House of Representatives and about one-third of the Senate are up for election, serving as a "midterm evaluation" of the sitting president (currently Republican Donald Trump).

Currently, the Republican Party holds a majority in both chambers. This election will be closely watched to see whether the Democratic Party can gain a majority in either chamber or if the Republicans can maintain their majorities. If the Democrats gain a majority in at least one chamber, it will result in a "divided government" where the president's party differs from the majority party in Congress.

In a divided government, the administration will need to negotiate with Congress on policies, which could affect the deliberation and passage of bills.

On the other hand, if the Republicans maintain their majorities in both chambers, the current congressional structure supporting the administration's policy direction will continue.

The dynamics in closely contested states and districts will also be a factor influencing the overall balance of power in Congress. However, when considering the impact on the cryptocurrency market, it is essential to monitor not only the situation in individual districts but also the post-election congressional structure and policy developments.

What is crucial for the cryptocurrency market is how the election results will change the deliberation of cryptocurrency-related bills and the direction of regulations.

2. The Fate of the "CLARITY Act" that the Cryptocurrency Market is Watching

One of the key policy issues that the cryptocurrency market is focusing on in this midterm election is the "CLARITY Act."

The purpose of this bill is to clarify the regulatory framework for cryptocurrencies in the U.S. and to organize the supervisory authority of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

In the U.S., discussions continue regarding the legal status of cryptocurrencies and the jurisdiction of regulatory authorities, and the clarification of regulations is an important theme not only for cryptocurrency businesses but also for institutional investors.

The CLARITY Act passed the House of Representatives in July 2025 (294 to 134), but on September 15, 2026, a motion to begin deliberations in the Senate was rejected (49 to 50, with 60 votes needed), leading to a prevailing view that its passage in this Congress is unlikely.

For the time being, it is expected that the SEC and CFTC will continue to develop rules within the scope of their existing legal authority. If the bill does not pass in this Congress, it will need to be reintroduced in the new Congress convening in January 2027.

In the House vote, the Democratic Party was divided with 78 in favor and 134 against, indicating that there are a certain number of members within the Democratic Party who support the introduction of a clear regulatory framework. Contributions from cryptocurrency companies to political action committees (PACs) have exceeded $200 million by the second quarter of 2026, supporting pro-cryptocurrency lawmakers across party lines.

3. Outlook for the U.S. Midterm Elections and Its Impact on the Cryptocurrency Market

In this midterm election, the trends of the prediction market "Polymarket," which utilizes blockchain technology, are also being closely watched.

Polymarket is a market where participants buy and sell contracts linked to predictions about the outcomes of elections and economic events. The trading prices serve as indicators of the probability of the expected outcomes.

As of October 19, 2026, data from Polymarket shows the following predicted probabilities for the main congressional compositions:

A scenario where the Democratic Party gains a majority in both chambers is at 63%, a scenario where the Democrats have a majority in the House and the Republicans in the Senate is at 28%, and a scenario where the Republicans maintain a majority in both chambers is at 9%.

These trends in the prediction market provide insights into market participants' views on the election results.

On the other hand, the impact of the election results on the cryptocurrency market will vary not only based on the congressional composition but also on subsequent policy management and the financial environment.

The following diagram organizes the Polymarket prediction market data and the anticipated impacts on the cryptocurrency market from both short-term and medium-to-long-term perspectives, depending on the election outcomes.

① If the Democratic Party gains a majority in both chambers

In the short term, uncertainty regarding tax policies related to cryptocurrencies and the supervisory policies of the SEC may exert downward pressure on the prices of Bitcoin and other cryptocurrencies.

However, even if the Democratic Party gains a majority in both chambers, the president will still be Republican Donald Trump, and coordination with the president will be necessary for the passage of bills. Therefore, if policy changes are perceived to be limited, the market's reaction may remain modest.

In the medium-to-long term, attention will be on whether progress is made in the legislative framework for cryptocurrencies, such as successor bills to the CLARITY Act. A clearer regulatory framework could enhance the predictability of business and investment decisions for cryptocurrency-related businesses and institutional investors, potentially encouraging market entry.

However, the passage of bills and the influx of funds from institutional investors are not guaranteed, and it is essential to assess the actual design of the system and the progress of deliberations.

② If the Democratic Party has a majority in the House and the Republican Party has a majority in the Senate

In the case of a "divided government" where the majorities in both chambers differ, policy adjustments may be challenging, and deliberations on cryptocurrency-related bills may take time.

On the other hand, if concerns about fiscal expansion ease and U.S. long-term interest rates decline, this could provide support for risk assets such as Bitcoin.

However, confusion in budget negotiations and delays in bill deliberations could heighten market uncertainty and pose headwinds.

In the medium-to-long term, the status of deliberations on cryptocurrency-related bills, along with fiscal policy, interest rate trends, and overall market capital flows, will be crucial factors. The market's reaction may differ based on how policy stagnation is evaluated, meaning that the direction of Bitcoin prices could depend on the financial environment.

③ If the Republican Party maintains a majority in both chambers

If the Republican Party maintains a majority in both chambers, expectations for the advancement of cryptocurrency-related policies promoted by the Trump administration may rise, potentially leading to buying pressure on Bitcoin and other cryptocurrencies in the short term. However, if such expectations are already priced into the market, the increase due to the election results may be limited.

In the medium-to-long term, fiscal expansion and tariff policies could raise inflation expectations and push up U.S. long-term interest rates. Rising interest rates could weigh on risk assets, including Bitcoin, leading to increased market volatility even as expectations for policy advancement rise.

However, the overall market liquidity and the influx of funds into Bitcoin spot ETFs could support prices, necessitating monitoring both policy trends and the financial environment.

Thus, the expectations and concerns regarding cryptocurrency-related policies will vary based on the election results, and short-term market reactions may not necessarily align with medium-to-long-term impacts on the financial environment. Additionally, actual price movements will be influenced not only by the pre-election pricing of the results but also by the overall trends in interest rates and foreign exchange markets, making it essential to monitor these changes as well.

4. Ripple Effects on U.S. Stocks, Interest Rates, and Foreign Exchange Markets

The results of the U.S. midterm elections could impact not only cryptocurrency-related policies but also U.S. stocks, interest rates, and foreign exchange markets. How these market changes ripple through to cryptocurrencies, including Bitcoin, is also a point of interest.

When considering the trends in the cryptocurrency market, it is necessary to pay attention to changes in these financial markets as well.

① U.S. Stock Market (Dow, S&P 500, Nasdaq, SOX)

After the election, a retreat of political uncertainty could support stock prices.

However, if the Democratic Party gains a majority in both chambers, discussions around corporate tax policies and AI-related regulations could weigh on stock prices. Additionally, in a divided government, the perception that significant policy changes will be restrained may also be viewed positively.

Nevertheless, actual stock price trends are influenced by corporate performance and interest rate environments, so the election results alone will not determine the direction.

Cryptocurrencies, like stocks, may also be affected by investors' risk preferences, making the trends in the U.S. stock market a point of interest.

② U.S. Long-Term Interest Rates (10-Year Treasury Yield)

U.S. long-term interest rates are also a crucial factor influencing the pricing of risk assets, including cryptocurrencies.

If the Democratic Party gains a majority in both chambers, expectations for fiscal policy adjustments and concerns about growth slowing could lead to a decline in long-term interest rates.

Conversely, if the Republican Party maintains a majority in both chambers, inflation concerns from fiscal expansion and tariff policies could lead to an increase in long-term interest rates.

However, long-term interest rates are also influenced by the Federal Reserve's monetary policy outlook and economic trends, so they may not necessarily move in line with the election results.

Generally, rising interest rates can suppress investment appetite for risk assets, while falling interest rates may support the cryptocurrency market. However, if the backdrop for falling rates is concerns about economic downturns, it does not necessarily lead to price increases.

③ Foreign Exchange Market (USD/JPY)

Regarding the foreign exchange market, it is not possible to determine the direction of USD/JPY solely based on the election results.

A decline in U.S. long-term interest rates and a narrowing of the interest rate differential between the U.S. and Japan could lead to a weaker dollar and stronger yen, while expectations for U.S. growth and improvements in investors' risk preferences could support a stronger dollar and weaker yen. Additionally, the Bank of Japan's monetary policy and the market's pre-election pricing are also crucial factors influencing the foreign exchange market.

Bitcoin is often traded in U.S. dollars, so trends in the dollar exchange rate are also points of interest. Furthermore, when considering the price of Bitcoin in Japanese yen, fluctuations in the Bitcoin price itself, along with changes in the USD/JPY exchange rate, will also have an impact.

Thus, when considering the impact of the U.S. midterm elections on the cryptocurrency market, it is important to pay attention not only to cryptocurrency-related policies but also to the ripple effects through the stock, interest rate, and foreign exchange markets.

5. Conclusion

The midterm elections on November 3, 2026, are a significant event for considering the future policy direction of the U.S. and cryptocurrency regulation.

If the congressional composition changes due to the election results, it could impact the deliberation of cryptocurrency-related bills, including the CLARITY Act, as well as discussions around fiscal and monetary policies.

Moreover, even if the congressional composition indicated by the prediction market materializes, the reactions of stocks and cryptocurrencies may differ based on expectations for policies and the pre-election pricing in the market.

While uncertainty around regulations and taxation may serve as a short-term headwind, changes in the interest rate environment and progress in the legislative framework surrounding the CLARITY Act may provide support.

It is crucial to assess not only the election results themselves but also the subsequent policy trends and the ripple effects on the stock, interest rate, and foreign exchange markets.

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