Cryptocurrencies after the election 🔎

Following the midterm elections in the United States, the new political landscape has shifted how markets price the balance between regulatory oversight and fiscal policy. With the Democrats securing a majority in both the House of Representatives and the Senate, major digital assets initially experienced a sharp pullback, followed by a notable recovery.

This movement is best interpreted as a rapid repricing of political risk rather than a fundamental shift in demand.

What happened to prices?

After dipping toward $75,600 during the overnight session, Bitcoin climbed above $78,000, eventually reaching approximately $80,290. Ethereum showed similar momentum, rising by about 7% to approach $2,434 before stabilizing around $2,421.

During this recovery, the total market capitalization increased by approximately $87 billion, reaching $2.63 trillion. The Fear & Greed Index rose from 26 to 34; while still in the "fear" zone, the trend has shifted upward.

This V-shaped movement appears to be a reaction to the resolution of uncertainty rather than a response to any single piece of news.

What happened with leverage?

Activity in the derivatives market was intense. Total liquidations over the last 24 hours reached $468.66 million, with $266.24 million coming from long positions. In other words, long positions were wiped out during the decline, followed by a swift rebound.

There was also significant activity in the options market on election day. Approximately $660 million worth of Bitcoin options changed hands in block trades, with about $420 million of this volume consisting of call option purchases. This points to positioning geared toward a recovery; the market was shaken initially, but those betting on a rebound subsequently stepped forward.

Why is this recovery not surprising?

From a long-term and dialectical perspective, the initial decline followed by a recovery suggests that a "Democratic sweep" had already been largely priced in. Prediction markets had assigned a high probability to this outcome, meaning the scope for a shock was limited.

The structural implication concerns the legislative front. A divided government creates additional friction for the market structure bill—a piece of legislation already facing gridlock in the Senate. With existing regulatory guidance from the SEC and the CFTC remaining in place, the likelihood that new, comprehensive legislation will be delayed until 2027 has increased.

Where did the macro tailwind come from?

The recovery is not merely an intra-crypto story; macro factors also provided support. Political gridlock reduced the prospect of significant fiscal expansion, which pushed down Treasury yields and the dollar. A weaker dollar, combined with expectations for a pause in interest rate hikes, created a supportive environment for risk assets, including crypto.

In short, the resolution of political uncertainty, coupled with easing in the dollar and bond yields, opened a short-term window for risk appetite.

Is this rally sustainable?

The real question here is whether this recovery is simply a "relief rally" triggered by the removal of uncertainty, or if it can be sustained by actual spot demand. The divergence between short-term optimism and long-term structural challenges remains at the core. Until security concerns, the need for regulatory clarity, and liquidity conditions are addressed, the sustainability of the post-election rally will depend on the extent to which spot demand enters the market.

Key indicators to watch include whether the rise in total market capitalization is confirmed by spot trading volume, whether the "fear index" has moved out of the "fear zone," and whether the easing in bond yields and the US dollar continues.

This content is for informational purposes only and does not constitute investment advice.

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