Here’s What Crypto Traders Expect From the Midterms

After two years of Democratic Party control of the U.S. presidency and both legislative chambers, Republicans look poised to take control of the House of Representatives and maybe the Senate in Tuesday’s midterm elections.

The state of the economy plays a big role in whether people are happy with their government. Right now, things could be better, with inflation still roughly four times the Federal Reserve’s 2% target; Republicans have pinned much of the blame on President Joe Biden and his pandemic stimulus packages.

“This was the largest fiscal and monetary response in history and that’s great, but elements of how it was delivered weren’t the best and we probably overdid it,” Brett Ryan, senior U.S. economist at Deutsche Bank told Politico earlier this year. On the other hand, Alan S. Blinder, former vice chairman of the Federal Reserve, wrote in the WSJ in June that inflation started rising because of COVID-19, oil prices and food prices, and "not because of anything Mr. Biden did."

Most people who want jobs have plenty of options, but rising short-term U.S. Treasury bond yields and a struggling stock market could point toward more tumultuous times ahead – especially with Federal Reserve officials signaling recently that they may have to double down on monetary tightening.

“Economic priorities and inflation have returned as the core political issues defining the last stretch of the race,” researchers at investment bank and financial services company Raymond James & Associates wrote in a note.

As a result, financial markets, including crypto assets, will likely see some volatility this week as traders monitor the results starting with exit polls on Tuesday night.

CoinDesk spoke with a few analysts and traders and compiled some of their key thoughts and predictions on the midterm elections.

  • Howard Greenberg of Prosper Trading Academy: “A win by the Republican Party would be considered positive for crypto on two different fronts. First, a split leadership is considered to be positive for the markets as the fear of legislation through reconciliation dissipates, and there will be more debate on fiscal policy moving forward. The second positive would be that we have seen many bills on crypto regulation stall out over the last 12 months. The change in leadership in Congress and Senate could lead to more cooperation and coordination between the parties providing a more conducive atmosphere to get some legislation passed.”
  • Edward Moya, senior market analyst at foreign exchange brokerage Oanda: “Crypto traders might get taken on another roller coaster ride this week as two big events could trigger a major move for markets. ... If the Democrats somehow keep both chambers, that should be bullish for the dollar and bad news for cryptos. If the Republicans win the House or both chambers, that should be positive for risky assets, especially cryptos. A red wave over the short-term could mean that we won't see a fiscal response from the Biden administration once the economy falls into a recession. A republican sweep would be most bullish for Treasuries and put pressure on the dollar. It won't be a long-lasting trend as a Republican sweep increases the odds that debt ceiling talks could provide unwanted pressure on every risky asset.”
  • Riyad Carey, research analyst at crypto data firm Kaiko: “It seems likely that markets would most favor a Republican sweep, as they have generally been more lenient towards the industry. But I wouldn’t expect a rally based on the results, as legislation and regulation moves slowly and the bills with most traction have been bipartisan anyways.”
  • Brian Overby, senior markets strategist at Ally: “Traders do not foresee excessive market swings after voters head to the polls next Tuesday. ... While the elections almost always create an extra layer of uncertainty in markets, midterms often result in a positive run for stocks which appears to be already underway.”
  • Fundstrat’s Tom Lee wrote in a note that Republicans taking over the Senate would be deflationary partly due to the fiscal restraint.

Jocelyn Yang contributed to this article.