I've been saying for a while that there's a major bearish factor hanging over the crypto market: Trump is very likely to lose political influence in the midterm elections, and the U.S. will tighten its policies on the crypto industry as a result. That's why I'm waiting for this drop to buy the dip.
The midterm election results will start coming in today. Let's talk about $BTC what might happen next:
Before discussing market trends, let me first explain what the midterm elections are for and what it would mean if Trump lost political influence, so we can have a more informed discussion about whether prices will rise or fall.
1. If Trump loses political influence, panic will hit the crypto market
The midterm elections are elections for members of Congress. Since they take place halfway through Trump's four-year term, they're called midterm elections.
The lawmakers up for re-election this time are 435 members of the House and 35 senators. The House has 435 seats in total, and members serve two-year terms. Since everyone’s term is up this time, all seats are up for re-election. The Senate has 100 seats in total, and senators serve six-year terms. Since 35 senators’ terms are up this time, only 35 seats are up for re-election.
The U.S. has a separation of powers. Congress (the Senate and the House) controls the budget, legislation, personnel confirmations, and oversight and impeachment. The president oversees the executive branch and the military, while the courts handle the judiciary.
Trump is a Republican. Before the midterm elections, Republicans held the advantage in Congress: in the Senate, Republicans to Democrats stood at 218:214 (with 1 independent and 2 vacancies); in the House, Republicans to Democrats stood at 53:45 (with 2 independents).
But in this midterm election, many voters are unhappy with Trump (for example, the Iran war has raised the cost of living), so the market expects voters to cast their ballots for Democratic lawmakers, giving Democrats the advantage.
If Republicans lose their advantage in Congress, that means Trump will have no say in legislation, the budget, or personnel appointments.
To consolidate the dollar’s dominance, Trump has been relatively crypto-friendly: CZ, who was jailed on trumped-up charges, was pardoned; Justin Sun, who was under investigation, reached a settlement; and the rapid growth of on-chain U.S. stocks this year is due to the SEC not banning them…
So while Trump’s family has made a lot of money through $TRUMP and $WLFI , we have to admit that America’s crypto-friendly policies have significantly boosted the industry’s development.
But with Trump losing his influence, it’s easy to imagine Congress investigating the Trump family for making money in crypto. After all, the Beautiful Bill was shelved because Trump was making money. And the Democrats’ hostility toward crypto will show up in all sorts of ways from here on out.
Of course, the election results are still just predictions for now; the official results aren’t out yet. Voting in this election spans 36 states, and many voters are voting by mail, so the results may take a while. There could still be good news, so keep an eye out.
II. The market’s main theme lately: down
So for the market, if Trump loses his influence and crypto goes back to being targeted by the Democrats, people in crypto could face lawsuits and be held accountable again. The pace of traditional finance entering the space would definitely slow sharply.
I’ve said before that the amount of capital in crypto is so large now that another major rally—one that doubles prices—would require a massive influx of Wall Street money. That’s why I previously predicted that the next bull market would be defined by traditional Wall Street finance entering the space.
But the mood in the U.S. has changed, and institutions have basically been scared off. Over the past two weeks, spot ETF funds have mostly been flowing out, likely in part to avoid the downside risk of the midterm elections.
And here’s a scary fact: BTC has plunged during all three midterm elections in history!
2014 midterm elections: The president loses control of both chambers; bottoms at around $171 within 71 days, down 48%;
2018 midterm elections: The president loses the House; bottoms at around $3,200 within 39 days, down 50%;
2022 midterm elections: The president loses the House; bottoms at around $15,500 within 13 days, down 16%
That’s why I’ve kept part of my position open, waiting for the negative impact of the midterm elections to play out and be absorbed. Then I’ll keep buying the dip.
This time, the drop definitely won’t be as severe as the 48% plunge triggered by Mt. Gox’s bankruptcy in 2014. There’s a lot more capital in the market now, so prices should be more stable. But I reckon we could still see a 15% drop.
The level I’ve set aside funds to buy the dip at is around $68,000.