Executive Summary
The significance of the 2026 U.S. midterm elections for crypto markets lies in their potential to reshape the pace of legislation, the intensity of regulatory oversight, and the scope for fiscal policy over the following two years. Short-term market pricing, however, remains governed by inflation, effective financing costs, and capital flows. With less than three weeks until the November 3 vote, the United States has entered a period of reassessment following renewed monetary tightening. The Federal Reserve raised its federal funds target range to 3.75%–4.00% in September, while September’s Consumer Price Index showed renewed price pressure. An election can change policy expectations, but it cannot directly lower the cost of holding positions or automatically turn sidelined capital into demand for BTC. [1][2][3]
Our base case is that the period before the election and its immediate aftermath will be characterized by elevated volatility, repeated repricing, and divergence across assets, rather than a sustained rally driven by a single political narrative. A durable advance requires three conditions to develop in sequence: expectations of monetary tightening must stop deteriorating, spot markets must attract renewed net inflows, and policy changes must create executable commercial opportunities. If the election merely resolves political uncertainty without support from the latter two conditions, a rebound may primarily reflect lower risk premiums and short covering. Its durability will remain uncertain. If inflation, dollar funding conditions, and the unwinding of yen carry trades exert pressure simultaneously, prices could fall even if investors regard the election outcome as favorable for the industry.
Current flow data support this cautious starting point. According to Farside’s published figures for the ten U.S. trading days from October 1 through October 14, spot BTC ETFs recorded approximately $537.4 million in cumulative net outflows, while spot ETH ETFs recorded approximately $825.1 million. Combined net outflows reached approximately $1.3625 billion. Meanwhile, the total stablecoin market capitalization tracked by DeFiLlama stood at approximately $303.118 billion, up just 0.52% over the preceding 30 days and down 0.60% over the preceding seven days. These figures indicate that the industry retains a substantial stock of settlement assets, but marginal demand for risk assets has yet to expand broadly. [4][5][6]
On policy, it is essential to distinguish established institutional arrangements from expectations that remain unfulfilled. The GENIUS Act was signed into law in July 2025. By contrast, on September 15, 2026, the Senate’s cloture vote on the motion to proceed to the crypto market structure bill H.R.3633 received 49 votes in favor and 50 against, falling short of the required threshold. At the same time, the SEC has continued to advance custody proposals and conditional experiments involving tokenized securities. Changes in congressional control therefore affect the availability of different policy instruments and the cost of advancing them. They do not mean that all crypto activities will simultaneously receive support or face prohibition. [7][8][9]
Across assets, BTC is the clearest starting point for monitoring macroeconomic risk appetite and institutional flows. ETH requires additional confirmation through relative performance, on-chain demand, and an improvement in flows. Research on DeFi, real-world assets, and trading infrastructure should focus on revenue quality, compliance pathways, and token value accrual. Political meme coins and illiquid tokens are more directly exposed to fading attention, concentrated selling, and execution risk. This report does not assign uncalibrated numerical probabilities to election outcomes or present illustrative stress tests as price targets. Instead, it offers a set of phase-specific judgments that can be tested—and invalidated—by subsequent data.
This report was prepared by HTX Research, the dedicated research arm of HTX. In its April report, Hormuz Shock, U.S. Midterms, and the Repricing of the Crypto Market, HTX Research identified the midterm elections as the second major variable for crypto markets. This report is a pre-election update on that theme, focusing on how policy outcomes and macroeconomic financing conditions jointly shape the pricing of crypto assets.
1. Research Scope and Core Questions
1.1 Which Variables Can the Midterm Elections Change?
The U.S. midterm elections are not a presidential election. Voting on November 3, 2026, will determine the composition of the next Congress and include state and local elections. All 435 voting seats in the House of Representatives are contested every two years, while a portion of Senate seats are contested under its rotating election schedule, alongside any special elections. A change in congressional control does not automatically end the president’s term. The next Congress begins its term on January 3, 2027. Election Day, the point at which the results become reasonably clear, and the date on which the new Congress begins exercising its powers are therefore three distinct milestones. [1][10]
For crypto markets, the most direct changes concern committee leadership, hearing and investigative powers, legislative priorities, regulatory agency budgets, and the political conditions surrounding certain appointments. Changes in the House primarily affect legislation, budget negotiations, and oversight. Changes in the Senate also affect the confirmation of nominees and whether legislation can clear procedural hurdles. Even when one party controls both chambers, its members cannot be assumed to share a single position on stablecoins, exchanges, DeFi, or crypto holdings by political figures. Industry policy typically emerges from coalitions around specific provisions rather than a simple aggregation of party labels.
1.2 Prices Respond to Expectations and Surprises
The first question in analyzing elections and markets is whether a particular outcome is already reflected in prices. If investors strongly expect a divided Congress before the vote, the realization of that outcome may not trigger another substantial adjustment. Conversely, an outcome that appears unfavorable in absolute terms can still coincide with a rally if it is less adverse than investors feared. There is no contradiction: marginal buying and selling reflect the difference between new information and prior expectations, rather than an event’s absolute merits.
The same logic applies to monetary policy. Markets can rise on the day of a Federal Reserve rate increase if the accompanying guidance is less hawkish than expected. They can also fall after a decision to leave rates unchanged if the projected path becomes more restrictive. The proximity of the election to the FOMC meeting increases the likelihood that political and monetary surprises will interact. This report therefore identifies political news, macroeconomic data, and market positioning separately before examining their combined effects. Any framework that maps an election result directly onto a BTC price direction risks overlooking the variables actually driving the market.
1.3 Data Cutoff and Research Methodology
This report uses publicly verifiable information available as of October 15, 2026. Macroeconomic data reflect the latest releases available from the relevant institutions. ETF statistics run through the U.S. trading day of October 14. Intraday prices are dated snapshots from published reports rather than standardized closing prices from a single exchange. Stablecoin market capitalization reflects the dynamic page observed on October 15. The forward-looking analysis covers the final two to three weeks before the election, the days immediately afterward, year-end, and the first half of 2027. Policy facts, judgments derived from those facts, and conditional scenarios are identified separately.
The methodology combines event analysis with conditional scenario analysis. It does not claim to provide a statistical model with demonstrated predictive significance. Historical annual returns illustrate the broader cycle but are not election-event returns. ETF net creations and redemptions indicate flow direction but do not establish investor motives. Stablecoin market capitalization measures a stock of on-chain capital but does not directly measure uncommitted buying power. Inputs and formulas are disclosed for internally calculated indicators, and numbered citations correspond to the linked original sources at the end of the report.
2. Where the Market Stands Today
2.1 BTC Is Already Absorbing Macroeconomic Pressure
Intraday reporting on October 15 indicated that BTC briefly declined to approximately $80,247, with another quoted level of approximately $80,743. A separate source reported a price near $81,200 at a different time. Accordingly, this report describes the day’s price environment as ranging between 80,000 and 81,000 without combining these snapshots into a continuous price series. The significance of this range is that the market has already responded to the latest inflation data and rate-hike risk. It does not establish that any particular round-number level must act as a floor. [11][12]
Analyzing the election from this starting point also requires considering the effects of previous position adjustments. A decline in prices suggests that some adverse information may already be priced in. However, falling prices can also reduce collateral values, trigger forced selling, and lead market makers to reduce risk limits. Therefore, “prices have already fallen” and “selling pressure has ended” are therefore separate propositions. Stronger evidence of an improving supply-demand balance would require prices to stop making persistent new lows in response to negative news, with rebounds supported by spot trading and net inflows.
2.2 Supportive Policy and Capital Outflows Can Coexist
Institutional progress does not guarantee net capital inflows in any given period. ETFs and regulated trading channels make it easier for investors to buy, but also to redeem, hedge, and reduce their positions. Traditional portfolios can compare BTC with technology equities, gold, and cash. When risk-free yields and the cost of volatility rise, investors may temporarily lower their crypto allocations even if they remain constructive on long-term adoption. Institutional participation expands market access, but it does not eliminate capital-management discipline.
This is an important difference between 2026 and earlier crypto cycles. Policy discussions, listed investment products, and on-chain applications have become more developed, but mature channels also transmit external financial stress. When global portfolios face margin pressure, relatively liquid BTC holdings may be sold first. Similarly, when institutions need to raise their cash allocations, ETFs provide a convenient exit route. Institutionalization must therefore be evaluated through both entry and exit channels. Looking only at cumulative long-term inflows can obscure changes in marginal demand.
2.3 Key Data at the Starting Point
Indicator
Latest Verifiable Reading
Date and Definition
Research Implication
Federal funds target range
3.75%–4.00%
September 16 FOMC decision
The market is reassessing conditions after renewed tightening
U.S. headline CPI
3.7% year on year; 0.6% month on month
September data, released October 14
Headline inflation pressure has increased
U.S. core CPI
2.6% year on year; 0.3% month on month
September data
Short-term momentum and persistence require attention
U.S. payrolls and unemployment
Payrolls increased by 29,000; unemployment at 4.2%
Initial September release
Hiring is weak, but one release does not establish a recession
Spot BTC ETF net flows
−$537.4 million
Ten trading days, October 1–14
Marginal demand through institutional channels remains weak
Spot ETH ETF net flows
−$825.1 million
Same period; aggregate ETH product flows
ETH demand recovery requires separate confirmation
Total stablecoin market capitalization
$303.118 billion
DeFiLlama’s dynamic classification
The stock is substantial, but incremental growth remains limited
Japanese policy rate
Approximately 1.25%
September 18 decision, effective September 24
Yen funding is no longer close to zero-cost
Table 1 sources: [2][3][4][5][6][13][14]. Data with different reporting frequencies should not be treated as simultaneous trading signals. Absolute ETF flows have not been normalized by assets under management and therefore cannot directly establish relative redemption intensity.
2.4 The Market Is Becoming More Selective
Taken together, the evidence suggests a period of increasingly selective capital allocation. Macroeconomic constraints are intensifying, while opportunities remain in payments, trading, custody, and asset tokenization. Capital may concentrate in a small group of liquid assets, businesses with clear economics, or opportunities with identifiable catalysts, rather than accepting exposure to the entire altcoin market. A stable aggregate market capitalization can coexist with weakness in most tokens. A rise in BTC can also coexist with relative underperformance in ETH.
This assessment shifts the priority of pre-election research away from finding the strongest political slogan and toward identifying persistent buyers and assets that maintain market depth under adverse news. For platforms and projects, registered users, headline trading volumes, and short-lived increases in locked capital should be weighed against actual capital retention. For investors, the quality of asset selection may matter more than predicting a single election outcome.
3. What History Can—and Cannot—Tell Us
3.1 Post-Election Equity Performance Shows a Pattern, Not a Promise
Schwab’s analysis of 13 midterm elections since 1974 found that the S&P 500 gained an average of 5.7% over the following three months, with positive returns in 11 cases. Over the following six months, the average gain was 12.4%, with positive returns in all 13 cases. This suggests that risk assets have often recovered after political uncertainty subsided. However, this finding describes a particular sample and observation window. It does not guarantee returns over the next six months. [15]
Several mechanisms could contribute to this pattern: pre-election risk aversion may create a depressed starting point; clearer outcomes may release sidelined demand; monetary policy or the earnings cycle may improve at the same time; and equities have a positive long-term return tendency. Establishing the election’s independent contribution would require controlling for these factors. Therefore, translating “markets have often risen historically” into “investors should immediately become fully invested” crosses an evidentiary gap between statistical description and portfolio decisions.
3.2 BTC Has Very Few Comparable Midterm Election Observations
Using the same annual return series displayed by StatMuse, BTC’s full-year returns in 2014, 2018, and 2022 were approximately −57.59%, −73.48%, and −64.27%, respectively. Returns in the following years—2015, 2019, and 2023—were approximately 34.37%, 92.00%, and 155.41%. These observations appear cyclical, but they are not measured from election day. They also do not separate election effects from industry deleveraging, monetary policy, or the supply cycle. [16]
It is particularly important not to treat “declines in midterm election years followed by recoveries the next year” as a robust causal rule. BTC has a short comparable history, and its early market structure differed substantially from today’s. Selecting only the years that best fit a narrative introduces considerable sample-selection risk. In 2010, the market was still at a very early stage, with limited continuity and representativeness of trading. Excluding that year improves comparability but further reduces the sample. Three observations cannot support a reliable win rate, much less determine an appropriate level of leverage.
Figure 1. BTC Returns in Midterm Election Years and the Following Years
Source: StatMuse [16]; redrawn for this report. These are full calendar-year returns, not event returns measured from election day.
3.3 The Halving Cycle and Election Cycle Can Be Confused
Bitcoin halvings and U.S. presidential terms both follow an approximately four-year rhythm. Midterm elections consequently often occur at similar points following a halving. This calendar overlap can create a compelling visual correlation without establishing a shared underlying mechanism. Halvings affect new supply, while elections affect political power. Actual prices depend on selling by existing holders, marginal demand, leverage, and external liquidity.
Even when a halving reduces miners’ newly available BTC supply, the effect can be outweighed by ETF creations and redemptions, distribution by long-term holders, or derivatives deleveraging. As the market grows, changes in the structure of marginal demand become increasingly important. The key question in 2026 is not which box the market occupies on a four-year cycle diagram. It is whether buyers are willing to keep increasing exposure at prevailing financing costs and levels of policy risk.
3.4 Historical Cases Are More Useful for Identifying Failure Conditions
History is most useful when it highlights the conditions under which a plausible post-election rebound can fail. If credit risks have not fully surfaced, regulatory disputes are still spreading, or monetary tightening continues to exceed expectations, these pressures can overwhelm the benefits of lower political uncertainty. Conversely, markets can rise even after an election outcome that falls short of the industry’s most optimistic expectations, provided real interest rates decline, risk budgets recover, and capital continues to flow in.
This report therefore uses history to frame testable questions rather than reproducing a previous price path. Does the market stop making new lows after the election? Does participation in the rally broaden? Are there actual capital inflows, rather than merely an increase in derivatives positions? Do policy changes materially improve access for users and institutions? These questions have greater explanatory value than directly applying the experience of a particular historical year.
4. Macroeconomic Constraints Set the Limits of an Election Rally
4.1 Inflation Shocks First Change the Expected Path of Interest Rates
The most important feature of September’s CPI release is the combination of headline volatility and underlying core inflation momentum. Gasoline prices rose 9.1% during the month, making energy an important contributor. However, core CPI increased by 0.3% month on month for a second consecutive month, meaning that the inflation pressure cannot be attributed entirely to a single energy shock. For crypto assets, the central question is whether these developments lead the central bank to conclude that further tightening is necessary—not simply whether one year-on-year figure appears high. [3]
Using the rounded monthly changes published by the BLS, core CPI increased at an annualized rate of approximately 3.25% over July through September. This is calculated by multiplying the three monthly price-change factors, raising the result to the fourth power, and subtracting one. Because the inputs are rounded, this is an approximate momentum measure rather than an official BLS statistic or a forecast for the next year. Its relevance is that a relatively low year-on-year reading can coexist with stronger recent price momentum, prompting markets to reassess how quickly inflation is declining.
Figure 2. Recent Momentum in U.S. Headline and Core CPI
Source: BLS [3]. Seasonally adjusted monthly changes from March through September 2026. The approximate annualized rate of core CPI over the latest three months is 3.25%.
4.2 Slower Hiring Does Not Automatically Produce Monetary Easing
U.S. nonfarm payrolls increased by 29,000 in September, while the unemployment rate stood at 4.2%. These figures allow investors to discuss an economic slowdown, but a single month’s payroll growth does not establish that the economy is in recession. Changes in labor supply, concentration across industries, revisions to earlier releases, and survey uncertainty all matter. If hiring slows while inflation remains persistent, the Federal Reserve faces a more difficult trade-off between growth and price stability rather than a straightforward decision to cut rates. [13]
This creates two-sided risks for crypto assets. A moderate slowdown accompanied by lower inflation could reduce future financing costs while preserving investors’ capacity to take risk. A sharp deterioration in growth and widening credit spreads, however, could initially trigger a scramble for cash. Even if the central bank subsequently eases, BTC may not rise immediately. Analysis of rate-cut expectations must therefore consider their cause. Easing made possible by improving inflation has different short-term implications for risk assets from easing forced by financial distress.
4.3 The Dollar and Real Interest Rates Must Be Assessed Together
A Reuters report on October 15 recorded the dollar index retreating to approximately 102.03 following an earlier advance, while the 10-year Treasury yield stood near 5.09%. These are snapshots at the time of publication, not a standardized daily closing series. Nevertheless, they underscore the importance of long-term financing conditions for valuation. For BTC, which does not generate fixed cash flows, higher yields on safe assets increase the opportunity cost of holding it. For traders dependent on financing and risk budgets, the cost of dollar funding affects the size of positions they can sustain. [17]
An increase in nominal yields also needs to be decomposed. If it is primarily driven by stronger growth, risk appetite may not weaken at the same time. If it reflects higher real borrowing costs or a rising term premium, long-duration asset valuations are more likely to come under pressure. If it reflects destabilizing inflation expectations, gold, energy, and BTC may not move in the same direction. This report therefore avoids the mechanical assumption that higher Treasury yields must cause BTC to fall. Instead, it evaluates yields alongside the dollar, credit spreads, and spot-market flows.
4.4 Fiscal Expansion Operates Through Both Demand and Financing
Markets often interpret tax cuts, public spending, and subsidies as supportive for risk assets because they can increase disposable income and corporate cash flow. However, when inflation has not stabilized, fiscal expansion can also increase aggregate demand and Treasury issuance, pushing up long-term interest rates and partially offsetting those cash-flow benefits. Short-term stimulus that is politically helpful to the governing party does not always align with the stable financing conditions preferred by financial markets.
A divided Congress should not automatically be interpreted as bullish either. It can reduce the probability of large new fiscal packages and moderate some demand pressure, but it can also increase appropriations disputes, budget deadlock, and administrative uncertainty. For crypto markets, the relevant questions concern the scale, implementation timing, financing method, and beneficiaries of specific fiscal measures. “Unified government” and “divided government” are not capital-flow indicators in themselves.
4.5 Treasury Cash Balances and Liquidity Cannot Be Reduced to One Formula
Changes in the Treasury General Account, or TGA, affect bank reserves when other factors are held constant. Tax receipts deposited into the TGA can reduce reserves, while government spending can have the opposite effect. The Federal Reserve Bank of St. Louis clearly explains this accounting relationship. However, the market impact also depends on who purchases Treasury securities, whether the money previously sat in bank deposits or money market funds, whether reverse repo balances change, and how much risk financial institutions are willing to absorb. [18]
The commonly used measure of “Federal Reserve assets minus the TGA minus reverse repos” is therefore only a simplified monitoring tool. It cannot directly explain BTC prices, much less calculate a precise amount of upside. The September FOMC statement emphasized maintaining ample reserves, while the Federal Reserve’s midyear balance-sheet discussion also indicated that reserve management and changes in total assets must be analyzed separately. A higher policy rate should not automatically be described as continued balance-sheet contraction. Nor should an increase in assets automatically be interpreted as the start of quantitative easing intended to stimulate risk assets. [2][19]
4.6 Yen Carry Trades Are an Essential Cross-Market Risk
On September 18, the Bank of Japan adjusted its policy-rate target to approximately 1.25%, effective September 24. Its next policy meeting is scheduled for October 29–30, immediately preceding the October FOMC meeting. This sequence means that pre-election risk originates not only in Washington, but also in changes to Japanese interest-rate and exchange-rate expectations. [14][20]
The basic yen carry trade involves borrowing yen at a relatively low cost and investing in assets offering higher yields or expected appreciation. Returns depend on the performance of the purchased assets, financing costs, and exchange rates. Rapid yen appreciation can increase the cost of repaying the borrowing, forcing investors to sell overseas risk assets and buy back yen. If margin requirements and risk limits are triggered at the same time, the result can be cross-market deleveraging. BIS research on the market turbulence of August 2024 identifies an important relationship between carry-trade unwinds and amplified volatility. [21]
However, not every crypto decline can be attributed to yen funding, and aggregate yen borrowing cannot establish how much was directly invested in BTC. Public statistics generally do not fully identify the ultimate uses of those funds. A more reliable approach is to look for the simultaneous appearance of rapid yen appreciation, higher global volatility, synchronized declines in risk assets, and tighter financing conditions. Moderate yen appreciation on its own, with stable credit and liquidity conditions, does not justify predicting broad forced liquidation.
5. How Election Outcomes Affect Policy Pricing
5.1 Congressional Majorities Determine the Agenda, Not Every Outcome
At the time of Reuters’ October 12 report, Republicans held a 53–47 majority in the Senate. Even if the seat distribution changes, one must still distinguish a simple majority from the coalition supporting a particular bill and the votes required to overcome procedural obstacles. September’s procedural vote on H.R.3633 demonstrated that an industry bill does not automatically clear every hurdle merely because one party controls Congress. [8][22]
For research purposes, committee chairs, pivotal lawmakers, and the design of individual provisions may be more informative than broad nationwide measures of support. Stablecoin reserves, anti-money-laundering requirements, personal privacy, developer liability, bank competition, and conflicts of interest involving public officials can each produce different voting coalitions. Compressing all these issues into a single “pro-crypto” dimension risks overstating the consistency of policy progress. It also risks overlooking administrative advances that can continue after legislation stalls.
5.2 A Scenario in Which Republicans Retain Both Chambers
If Republicans retain control of both chambers, the market may initially price in policy continuity and renewed opportunities for legislation. Themes surrounding trading infrastructure, custody, and tokenized-assets could receive greater attention. The potential benefit would stem from lower coordination costs across some institutions and greater visibility for industry priorities on the legislative agenda. Even so, specific rules must still be assessed through the text of legislation, procedural timetables, and implementation details. An election victory does not eliminate regulatory risk.
The main offsetting risk in this scenario is macroeconomic. If investors simultaneously raise their expectations for fiscal expansion, tariffs, or long-term Treasury supply, a stronger dollar and higher yields could offset supportive industry policy. If substantial long positioning based on policy continuity has already accumulated before the election, the announcement of results could also trigger profit-taking. Political support is more likely to develop into a durable trend only if spot capital follows and prices retain their initial gains. Otherwise, the result may mark the culmination of a crowded trade.
5.3 A Democratic House and a Republican Senate
A divided Congress could slow broad market-structure legislation while increasing oversight and hearings. Reuters reported on October 13 that a Democratic victory in either chamber would expand investigative powers, bringing additional scrutiny to crypto and prediction-market businesses and their regulators. That would not, however, automatically stop regulatory adjustments by the executive branch. [23]
For asset prices, this configuration could produce an initially negative response followed by market differentiation. Projects dependent on rapid legislation or political connections could face higher risk premiums, while platforms with clearer business boundaries and established revenue sources might prove more resilient. If divided government also reduces expectations of excessive fiscal stimulus, the macroeconomic effect could provide some support for BTC. The net impact must therefore be assessed by considering both the discount applied to industry policy expectations and changes in interest rates, rather than assuming that a divided government is inherently beneficial or harmful.
5.4 A Scenario in Which Democrats Win Both Chambers
If Democrats control both chambers, regulatory oversight, conflicts of interest, and consumer-protection requirements will likely carry greater political weight. Markets may initially reduce the value assigned to rapid deregulation, particularly for businesses heavily dependent on special policy treatment, related-party transactions, or limited disclosure. However, neither the president nor executive agencies wouldautomatically change the day after the vote, and existing laws would not immediately cease to apply.
The medium-term impact will depend on whether policy disputes develop into workable rules. If stronger disclosure, asset segregation, and conflict-of-interest restrictions improve institutional confidence, some compliant businesses could benefit. Constraints on aggregate industry activity can coexist with higher industry concentration, and the consequences may differ for listed companies, protocols, and governance tokens. Stricter oversight does not necessarily cause every asset to depreciate at the same time. The key questions remain who bears the costs and who receives the benefits.
5.5 A Republican House and a Democratic Senate
The other divided-Congress configuration also belongs in the analysis. If Republicans retain the House while Democrats gain the Senate, industry legislation may face different priorities in the two chambers. The Senate’s confirmation and oversight powers would likewise influence the conditions under which some policies advance. This scenario cannot simply be treated as equivalent to Democratic control of the House, because the two chambers have different procedures and powers.
The market could initially interpret this outcome as an increase in constraints on executive policy. Subsequent analysis should focus on nominations, committee agendas, and whether individual bills can attract bipartisan support. For BTC, the net effect would still depend on the macroeconomic financing environment. Businesses reliant on specific regulatory arrangements will require a more detailed assessment of key personnel and implementation progress. Both divided-Congress scenarios increase the cost of negotiation, but the businesses bearing those costs must be identified individually.
5.6 A Close or Prolonged Result
If close races, legal disputes, or subsequent elections delay a clear determination of congressional control, the market’s risk-management window will lengthen. Crypto trades continuously and may react to news before traditional markets. Continuous trading, however, does not guarantee continuous depth. Market makers can widen spreads and reduce quoted size as uncertainty increases, allowing relatively small aggressive orders to move prices substantially.
In this scenario, one of the least reliable approaches is to treat the first wave of vote-counting results as the final outcome. Voting patterns and counting procedures differ across jurisdictions, so early leads may not reflect the eventual result. Prediction-market prices also depend on information, capital, and liquidity. Trading decisions should distinguish official results, assessments by established news organizations, and unverified claims. Social-media screenshots are a particularly weak basis for adding leverage.
6. Crypto Policy Must Be Analyzed Measure by Measure
6.1 The Institutional Foundation for Stablecoins Has Already Changed
The GENIUS Act was signed into law on July 18, 2025, establishing a federal framework for payment stablecoins. The White House’s explanation emphasized eligible liquid reserve assets and reserve-disclosure requirements. For the 2026 election, the research focus has therefore shifted from whether a stablecoin law exists to implementation rules, access, supervision, and whether business models can operate within the framework. Repackaging the law as an unfulfilled election promise would overstate the novelty of the catalyst. [7]
Stablecoin expansion has two implications for crypto markets. It improves payments and settlement while increasing the stock of assets that can be used as on-chain units of account. However, users may hold stablecoins for remittances, corporate payments, or lower-risk yields without moving into BTC or other tokens. The link between stablecoin business growth and appreciation in volatile assets therefore requires evidence of how these funds are deployed. Not all new issuance represents imminent demand to buy crypto.
6.2 The Market-Structure Bill’s Setback Raises the Cost of Delay
The failure of the September 15 cloture motion on H.R.3633 was a procedural setback, not the repeal of an enacted law. It indicated that the previously anticipated comprehensive framework still faced obstacles. At this stage, the effect on industry valuations comes primarily through the cost of delay: companies may postpone product launches or increase legal budgets, while investors may demand higher returns to compensate for uncertainty surrounding future rules. [8]
If negotiations restart after the election, attention should focus on the revised scope and obligations rather than simply another headline announcing that legislation will advance. Exchange registration, the division of responsibilities between the SEC and CFTC, issuer disclosure, anti-money-laundering obligations, and developer exemptions will shape the competitive positions of different businesses. Policy certainty has value, but a clearer framework with higher compliance costs may not benefit every existing business model.
6.3 Administrative Rules and Legislation Advance Through Different Channels
In August, the SEC proposed an issuance framework under Regulation Crypto Assets. On October 1, it proposed changes to crypto custody rules for investment advisers and regulated funds. These proposals must be distinguished from final rules that have taken effect. Separately, a September 17 order provided five years of conditional exemptive relief to specified trading venues and certain liquidity providers involved in tokenized NMS stocks. Proposals, staff views, individual permissions, and Commission orders have different legal weights and should not all be described as comprehensive regulatory liberalization. [9][24][25]
The failure of comprehensive legislation therefore does not imply that business innovation has completely stopped. Policy can continue to advance through limited pilots, specific products, and conditional routes. These approaches, however, often place greater emphasis on eligibility, trading boundaries, and oversight. For RWA and on-chain trading platforms, commercial value should be demonstrated through reachable users, tradable assets, and actual execution quality rather than inferred from the broad proposition that regulators support blockchain.
6.4 The Strategic Reserve Narrative Must Translate into Additional Purchases
The March 2025 executive order established a Strategic Bitcoin Reserve, with BTC forfeited to the government forming an important initial source. It also directed officials to explore additional acquisition methods that would not impose extra costs on taxpayers. Moving existing assets into a reserve can change expectations about future disposals and official holdings. It does not mean that an equivalent amount of new demand immediately enters the open market. [26]
If reserve-related news resurfaces before or after the election, researchers should separately verify legal authority, funding sources, the implementing entity, and actual net acquisitions. Transfers between government addresses may reflect custody or administrative arrangements rather than buying or selling. Over a longer horizon, official holding arrangements may influence available supply and perceptions of the asset. In the short term, verifiable incremental transactions or credible execution plans have a more direct effect on marginal supply and demand.
6.5 Progress on Compliance Does Not Automatically Accrue to Tokens
Permission to conduct a particular business does not mean that an associated governance token necessarily captures its revenue. The business may be operated by an equity-owned company. Fees may accrue to service providers, liquidity providers, or users. The token itself may confer only governance rights. Research should separately measure user growth, gross fees, protocol net revenue, and income distributable to holders, while accounting for subsidies, operating expenses, and dilution.
This distinction is particularly important when election themes can trigger short-lived speculative activity. Higher exchange volume may increase corporate profits but also intensify fee competition. RWA growth may raise custody revenue without increasing fees on a particular blockchain. Greater stablecoin issuance may improve the issuer’s interest income without transferring those economics to a publicly traded ecosystem token. Valuation should follow the structure of economic rights, not merely the name of the business category.
7. Using Capital Flows to Test Whether the Market Is Ready to Rise
7.1 ETF Outflows Reflect Both Large Shock Days and Persistent Selling
Spot BTC ETF flows were not negative on every one of the first ten U.S. trading days in October. Several days recorded net inflows. However, outflows of $484.9 million on October 7 and $244.1 million on October 8 pushed the cumulative total into negative territory. Meanwhile, ETH recorded net outflows on nine of the ten days in the same window. BTC’s pattern therefore resembles a small number of large shocks outweighing routine demand, while ETH’s pattern shows more persistent negative flows. This describes the structure of the observation window, not the behavior or motives of all institutional investors. [4][5]
On October 14, the two groups recorded daily net outflows of $261.4 million and $129.5 million, respectively. For the pre-election assessment, the more important question is not whether the next day turns positive, but whether the cumulative direction improves over one to two weeks, and whether that improvement is distributed across several trading days and multiple products. Inflows driven by a single day or a special event at a single issuer generally offer weaker evidence than sustained, distributed flows that are consistent with spot-price behavior.
Figure 3. Daily Net Flows into U.S. Spot BTC and ETH ETFs
Source: Farside Investors [4][5]. Ten U.S. trading days from October 1 through October 14, 2026. Negative values indicate net outflows.
Figure 4. Cumulative ETF Flows within the October Observation Window
Source: Farside Investors [4][5]; calculations by this report. The starting cumulative balance is set to zero. These are not cumulative flows since the products launched.
7.2 ETF Inflows Do Not Mean All Investors Are Making an Outright Bullish Bet
ETF holdings may be paired with short futures positions, options overlays, or hedges elsewhere in a portfolio. Some investors buy spot ETFs and sell futures to capture the basis rather than express a long-term directional view. When the basis narrows, both sides of these positions may be closed. ETF redemptions therefore do not necessarily indicate that investors have become extremely bearish on BTC’s fundamentals. BIS research on crypto carry also highlights the relationship between high arbitrage returns, market segmentation, leverage constraints, and boom-bust dynamics. [29]
ETF flows should consequently be examined alongside the futures basis, open interest, and spot prices. Inflows accompanied by a rapidly widening basis may include new arbitrage positions. Outflows accompanied by simultaneous short covering may represent the unwinding of those trades. Without detailed position-level information, not all flows can be classified as directional investment. Nevertheless, persistent net outflows still indicate insufficient net demand through the relevant products, requiring other buyers to absorb the supply.
7.3 Stablecoin Supply Does Not Convert One-for-One into Demand for Risk Assets
Within DeFiLlama’s current classification, USDT accounted for approximately $183.862 billion and USDC for approximately $72.771 billion. Together, they represented roughly 84.7% of the total. This concentration indicates that the structure of dollar stablecoin liquidity remains dominated by a small number of major issuers. Total market capitalization increased slightly over 30 days but contracted over seven days, indicating that short- and medium-term changes point in different directions. Selecting only one window would not justify concluding that capital is broadly returning or systematically leaving. [6]
The aggregate also contains different collateral arrangements, yield mechanisms, and asset categories. Not every included project should be treated as cash of equivalent credit quality. Uses of capital should be separated into exchange collateral, on-chain lending, corporate payments, cross-border settlement, and asset tokenization. A more convincing confirmation of a market advance would combine stablecoin supply growth with net inflows to trading venues, actual turnover, and stronger buy-side depth. A sudden increase in minting by a single issuer is less informative.
Figure 5. Stablecoin Market Composition and Changes over Different Windows
Source: DeFiLlama [6]. October 15, 2026 snapshot. Total market capitalization was $303.118 billion. Other categories are calculated as the residual.
7.4 Derivatives Determine the Fragility of Short-Term Price Moves
An increase in open interest means that more contracts remain outstanding. Every contract has both a long and a short side, so higher open interest cannot directly be described as an inflow of bullish capital. Positive funding rates generally mean that longs pay shorts, but the interpretation depends on magnitude, persistence, and venue. Low funding rates do not automatically make a market safe. During the election window, a rally driven primarily by rapid growth in leverage rather than spot demand is more vulnerable to the unwinding of crowded positions.
Options require a distinction between direction and volatility. Investors may pay elevated implied-volatility premiums for exposure around the election. Even if they correctly predict the direction of the underlying asset, an option can lose value after the event because implied volatility falls and time value decays. Selling volatility is not a cost-free way to collect the event premium either: price gaps and a sudden loss of liquidity can exceed historical estimates. The suitability of a trade should be judged by its net payoff structure and the worst outcome the investor can absorb.
7.5 Market Breadth Helps Distinguish a Rebound from a Recovery in Risk Appetite
BTC can outperform on its own because of its liquidity and relative certainty. That is not enough to confirm that the entire crypto market has entered an upswing. Further evidence should include stabilization in ETH/BTC, broader participation among larger-cap assets, DEX volume generated by more independent users, and liquidity retention in newly issued tokens after incentives end. If gains remain concentrated in a handful of news-driven assets, market breadthr remains weak.
On-chain indicators must also account for repeated transactions, bots, and incentives. An increase in active addresses may reflect one user controlling several wallets. Arbitrage and wash trading can inflate turnover, while higher collateral prices alone can raise TVL. More informative measures include net capital changes denominated in stablecoins, revenue after incentives, repeat-user retention, and actual slippage for a defined order size. These metrics help distinguish temporary attention from durable demand.
8. Election Sensitivity Across Assets
8.1 BTC Is the Primary Asset for Monitoring Macro Conditions and Institutional Flows
In the base case, BTC’s stronger liquidity and relatively direct institutional access make it the first asset to monitor for evidence of improving conditions. If the dollar and effective financing costs stabilize and ETF demand recovers, BTC may benefit before assets that depend more heavily on speculative capital. However, its global liquidity also makes it an asset that can be sold quickly when risk budgets are cut. Relative maturity should not be confused with a guarantee of short-term safe-haven performance.
Research on BTC should assess both its response to negative news and the demand supporting positive news. Market quality improves when adverse macroeconomic developments produce smaller declines, gains after supportive policy announcements are retained, and spot demand strengthens at the same time. Conversely, rebounds accompanied by continued ETF outflows, rapidly rising funding rates, and deteriorating depth should be treated as tactical recoveries requiring further confirmation.
8.2 ETH Must Demonstrate the Additional Value of Its Risk Exposure
ETH is exposed not only to broad crypto risk appetite but also to demand for on-chain settlement, fee structures, staking and investment-product design, and competition across ecosystems. More persistent ETF outflows during the current observation window weaken the assumption that ETH will automatically catch up after BTC rebounds. Absolute outflows must also be considered relative to the assets under management of each product group. This report does not use raw dollar flows to calculate a precise multiple of relative redemption intensity.
Conditions for improvement in ETH should include stabilization against BTC, sustained improvement in ETF flows, the conversion of on-chain economic activity into genuine fee demand, and effective access for investors to relevant sources of return. If ecosystem applications increase while fees and demand to hold ETH do not, investors may be unwilling to assign a higher valuation. ETH research must move beyond asking where applications operate and examine who ultimately captures their economic value.
8.3 High-Performance Blockchains Depend More Heavily on Marginal Risk Budgets
SOL and other high-performance blockchains may exhibit greater growth sensitivity to trading, consumer applications, and token issuance. They are also sensitive to overall risk appetite. If stablecoin inflows, spot activity, and user retention recover together after the election, these assets could display greater upside responsiveness. If liquidity remains constrained, however, pockets of strong network activity may not be enough to offset holder selling and new supply.
Comparisons across blockchains should separately account for transaction fees, validator or sequencer revenue, token issuance, and user subsidies. A high transaction count does not necessarily imply high economic value, while low fees can reduce the network’s direct contribution to token demand. Election-related developments change only part of the external environment. Valuation ultimately still requires support from application demand and token supply-demand dynamics. Unlock schedules are especially important relative to the scale of near-term capital inflows.
8.4 DeFi Opportunities Depend on Revenue Quality and the Boundaries of Responsibility
Lending, decentralized trading, and derivatives protocols may benefit from recovering market activity, but their risks differ. Lending platforms require analysis of collateral quality, liquidation efficiency, and bad debt. Perpetual futures platforms require analysis of genuine trading activity, risk reserves, funding rates, and counterparty structures. Aggregators and yield strategies require a clear understanding of fee sources and exit mechanisms during extreme market conditions.
Greater policy clarity can reduce some barriers to institutional adoption while also imposing additional obligations on front-end providers, operators, or service providers. Permissionless contracts should not automatically be interpreted as exempting all associated commercial activities from regulation. At the token level, the focus should be on whether net revenue actually reaches buybacks, distributions, or another verifiable mechanism, and whether that mechanism is sustainable. A commitment approved through governance and an economic transfer already executed should be valued separately.
8.5 Stablecoin and RWA Growth Can Be Independent of Token Prices
High interest rates affect businesses differently. Short-term Treasuries and related on-chain products can offer relatively high nominal yields, and payment stablecoin issuers can earn income on reserves. At the same time, high rates increase borrowing costs and reduce the appeal of riskier tokens. Stablecoin and RWA business growth can therefore coexist with sideways BTC prices and declines in some governance tokens. Those outcomes are not inherently inconsistent.
For tokenized equities and funds, the key issues include holders’ legal rights, actual reserves, subscriptions and redemptions, custody, trading hours, and liquidity. Continuous on-chain transferability does not mean that the underlying security can be arbitraged at equally efficient prices at every hour. Nor does a conditional pilot exemption imply identical access for all investors. Returns on underlying assets, platform service revenue, and ecosystem-token performance should be analyzed separately. [24]
8.6 Political Meme Coins and Illiquid Assets Face Distinct Risks
Political meme coins may attract concentrated attention before the election, but the conclusion of voting changes the flow of information. After the narrative peaks, marginal buyers may become less numerous, while concentrated early holders may choose to exit. These assets lack cash flows that can be estimated with reasonable stability. Their prices depend more on trading attention, available supply, and actual market depth. A candidate’s polling support cannot be directly translated into a token price.
Similarly, tokens with low circulating supply and high fully diluted valuations may rise sharply on limited buying while being unable to absorb an equivalent amount of selling. Promotional trading-volume figures are not the same as the price at which a particular order can be executed. Research on election-related assets should prioritize ownership concentration, unlocks, market-making arrangements, and sell-side slippage for a normal order size. A position with a large quoted gain that cannot be realized should not be treated as an equivalent increase in portfolio returns.
9. The Market Path from the Pre-Election Period Through the First Half of 2027
9.1 Macroeconomic Repricing Dominates the Final Two to Three Weeks Before Voting
From the report date through late October, post-CPI interest-rate expectations, dollar moves, and ETF creations and redemptions will serve as more direct price drivers than isolated polling releases. The base case points to a defensive market, with rebounds constrained by flows and financing costs. Even in the absence of new negative information, investors may wait until after the Federal Reserve and Bank of Japan meetings before expanding positions, thereby limiting persistent buying into rallies.
An early improvement signal does not require a major positive headline. It can instead emerge when the market becomes less sensitive to bad news. If BTC stabilizes, cumulative ETF outflows narrow, the dollar stops rising, and leverage does not expand too quickly, the supply-demand balance may be normalizing. If the opposite signals persist, the election’s proximity alone is not a reliable source of support.
9.2 Two Central Bank Meetings Form the Key Pre-Election Checkpoints
The FOMC is scheduled to meet on October 27–28, followed by the Bank of Japan on October 29–30. For investors in Hong Kong and Beijing, a Federal Reserve decision announced at the customary 2:00 p.m. U.S. Eastern time on October 28 would correspond to 2:00 a.m. on October 29. The precise timing of the Bank of Japan’s decision is not fixed and should be confirmed through its announcement on the day. These consecutive meetings can alter dollar and yen financing conditions in rapid succession. [20][27]
The relevant comparison is between the decisions and what markets had previously priced. A pause accompanied by strong guidance toward further tightening may not provide meaningful support. A rate increase accompanied by a clearer period of observation could instead prompt investors to rebuild exposure. If both U.S. and Japanese policy are more hawkish than expected, cross-market deleveraging could overwhelm political themes. Election analysis should therefore be updated after these two macroeconomic checkpoints.
Figure 6. Key Events from Pre-Election Central Bank Meetings to the New Congress
Sources: FEC, Federal Reserve, Bank of Japan, BLS, and BPC [1][3][10][20][27][28]. Events are shown in chronological order; the timeline is not to scale.
9.3 Voting and Counting Initially Trade on the Size of the Surprise
November 3 is election day in the United States. For Asian investors, the main flow of vote-counting news will arrive on November 4 and afterward, with some races potentially taking longer to resolve. The initial market reaction will primarily reflect the difference between results and expectations, existing leverage, and market-making depth. It will not necessarily represent a completed, rational valuation of policy over the next two years. Fast-moving news can readily produce an initial decline followed by a rally, or vice versa.
If the result becomes clear quickly, a reduction in event risk premiums could support a recovery. If outcomes remain close or disputed, volatility could stay elevated. The key is whether the initial response persists: do prices retain their direction, does spot activity replace derivatives as the main driver, and do ETF flows during U.S. hours confirm moves that began during Asian hours? Consistency across trading sessions is more informative than the size of a one-hour move.
9.4 Economic Data Quickly Regain Attention in the First Post-Election Week
The BLS currently schedules the October employment report for November 6 and October CPI for November 10. Both releases are scheduled for 8:30 a.m. U.S. Eastern Standard Time, corresponding to 9:30 p.m. in Hong Kong and Beijing. Markets will therefore face fresh tests of growth and inflation shortly after the vote. A clear election result does not create a prolonged window in which prices are insulated from macroeconomic news. [3][28]
A post-election rebound supported by lower inflation and renewed capital inflows would have better prospects of continuing. If new data strengthen the case for further rate increases, the market could rapidly reassess previous political optimism. Not all price movements in the week after the election should be attributed to congressional control. Research should record the timing of each announcement and examine prices, interest rates, and flows within the same observation window.
9.5 From Year-End to the New Congress, the Focus Shifts to Policy Delivery
The December 8–9 FOMC meeting will include updated economic projections. Year-end portfolio adjustments, risk budgets, and changes in market depth may also affect prices, but they should not be assumed to generate buying. On policy, the key questions are whether the outgoing Congress advances specific measures during its remaining session, how leadership and committee assignments develop in the new Congress, and whether regulatory proposals proceed to their next stage. [27]
The direction of the market in the first half of 2027 ultimately depends on whether post-election policy expectations become executable rules and whether financing conditions support risk assets. If macroeconomic pressure eases, legislative negotiations become clearer, and institutional and on-chain capital continue to grow, a BTC-led recovery could broaden. Without those conditions, the change of calendar year and the start of a new Congress cannot guarantee another broad bull market.
10. Four Conditional Scenarios and Their Invalidation Criteria
10.1 Base Case: Selective Recovery Amid Elevated Volatility
The base case is not tied to victory by a particular party. It rests on a combination of macroeconomic pressure not deteriorating materially further, the election outcome eventually becoming clear, and industry policy continuing to advance gradually through existing channels. Under those conditions, the market remains cautious before the vote, with scope to rebuild risk afterward. Capital would initially favor liquidity and greater certainty, allowing BTC and a small number of assets with clear business models to recover before the broader altcoin market.
This view requires ongoing validation. If cumulative ETF flows remain negative, stablecoin market capitalization continues to contract, or rallies depend persistently on leverage, the recovery will lack durable support. Renewed inflation acceleration and higher financing costs would reduce the case for a post-election rebound. Conversely, sustained spot inflows and broader participation would justify upgrading the assessment from a tactical bounce to a more lasting improvement in trend.
10.2 Bull Case: Policy and Liquidity Improve Together
The bullish scenario requires slowing inflation momentum, a future tightening path that is less restrictive than expected, and reduced pressure in dollar and global funding markets. At the same time, the election outcome would need to lower policy uncertainty, with sustained growth in ETF demand and on-chain capital. BTC could confirm the improvement first, followed by ETH, major blockchains, and selected protocols with established revenue. That sequence is not a promise; it must be confirmed by relative performance and actual demand for assets.
Even if this scenario develops, it does not imply that every token returns to its previous high. Projects with excessive valuations, persistent unlocks, weak value accrual, or user attrition may continue to lag. A healthier advance would feature higher activity alongside lower slippage per unit of order size, financing costs that do not become excessively imbalanced, and user activity that persists after subsidies end. If prices outrun fundamentals and available buying power, a bullish scenario can gradually degrade into a crowded trade.
10.3 Bear Case: Inflation and Deleveraging Reinforce Each Other
The bearish scenario does not require an extreme political outcome. Persistent upside inflation surprises, simultaneous tightening in U.S. and Japanese financing conditions, and larger ETF redemptions could be enough to push the market lower. Additional policy conflict or a credit event at an important institution could materially weaken spot liquidity. BTC might prove relatively resilient in such an environment without generating a positive return. Losses and exit costs in illiquid tokens would generally be harder to control.
High nominal yields during a decline also deserve scrutiny because they may repackage underlying risks. Higher funding rates, borrowing rates, or LP fees can compensate investors for inventory, credit, and liquidity exposure rather than represent safe arbitrage. If the source of returns, the allocation of losses under stress, and the ability to exit cannot be clearly explained, a high annualized number is not enough to establish value. During cross-market deleveraging, maintaining the ability to trade and meet obligations matters more than maximizing headline yield.
10.4 Mixed Scenarios Are Easily Overlooked
One important possibility is improving macroeconomic conditions alongside stricter industry oversight. BTC could benefit from lower rates and a weaker dollar, while businesses that depend on regulatory relaxation are still repriced. Stablecoin payments and some compliant platforms could grow while politically connected assets underperform. The reverse is also possible: supportive industry policy headlines could coincide with continued monetary and funding pressure, resulting in only brief thematic rallies.
These combinations demonstrate that politics and macroeconomics are separate dimensions. To improve analytical discipline, the report uses a two-dimensional framework: financing and capital demand on one axis, policy implementation conditions on the other. A broad expansion in risk-taking has stronger foundations when both improve. If only one improves, divergence across assets is a more reasonable expectation. Allowing for that divergence is more useful than forcing every price movement into a single narrative.
Figure 7. A Two-Dimensional Framework for Policy and Funding Conditions
Source: Analysis by this report. Better policy conditions are not equivalent to easier funding. Together, the two determine whether a recovery can broaden.
10.5 Stress Tests Measure Capacity to Absorb Losses
Using $81,000 purely as an arithmetic reference point, declines of 10%, 20%, and 30% would correspond to $72,900, $64,800, and $56,700. Increases of 10% and 20% would correspond to $89,100 and $97,200. These figures illustrate the dollar implications of different percentage changes. They are not technical support levels, forecast ranges, or probabilistic confidence bands. Whether movements of those magnitudes occur around the election depends on actual volatility and market structure.
At the portfolio level, risk is more appropriately expressed through exposure and a loss budget. If an asset represents 20% of net assets and no leverage is used, a 25% decline in that asset alone would cause an approximately 5% direct portfolio loss, before allowing for moves in other assets and trading costs. If several holdings rely on the same source of risk appetite, they may decline together under stress. Holding many different tokens does not necessarily provide effective diversification.
11. Monitoring Indicators and an Execution Framework
11.1 Converting a View into Evidence That Can Be Updated
Daily pre-election monitoring can be organized into four groups. The dollar and interest rates describe external financing conditions. ETFs and stablecoins indicate capital demand. Spot depth and derivatives reveal the fragility of positioning. Official policy documents record institutional progress. Each group should retain timestamps, units, sources, and revision histories. Combining prices and flows from different periods can create an apparent relationship that does not exist in the underlying data.
Five consecutive U.S. trading days can serve as an initial ETF observation window, checked against a longer period. On-chain capital can be monitored over both seven and 30 days. These are practical research conventions, not parameters proven optimal through backtesting. A major event that changes the market structure may require the observation window to be reassessed. A single positive day provides information; persistent improvement is stronger evidence of a trend.
11.2 A Monitoring Table That Can Be Maintained Over Time
Indicator
Improvement Signal
Deterioration Signal
Main Interpretation Risk
Core inflation and the rate path
Slower momentum; easing expectations of further tightening
Broader price pressure; a higher expected rate path
Confusing year-on-year base effects with current momentum
Dollar and yen funding
Stable financing; lower currency volatility
A stronger dollar or rapid yen appreciation accompanied by deleveraging
Examining exchange rates without funding conditions
ETF creations and redemptions
Net inflows across multiple days and products
Persistent outflows or large redemptions
Treating every arbitrage position as a directional investment
Stablecoins and on-chain capital
Supply and trading-venue demand expand together
More redemptions; declining use in risk-taking
Treating the entire existing stock as uncommitted buying power
Market breadth and depth
Broader participation; lower slippage
Gains concentrated in a few assets; weaker depth
Using wash trading or address counts as substitutes for demand
Derivatives structure
Spot-led moves; moderate leverage growth
Crowded positions; funding and volatility imbalances
Treating open interest as net long exposure
Policy implementation
Clear text, votes, and implementation routes
More disputes; delayed execution
Treating proposals or speeches as rules already in force
Table 2 presents the report’s monitoring framework. It does not imply that all current indicators already exhibit the listed signals. Relevant data sources are provided in the references.
11.3 Directional Positions and Event Trades Need Different Horizons
Long-term allocation is based on adoption, asset characteristics, and institutional development. Event trading focuses on surprises, timing, and positioning. Both can coexist, but their definitions should not be changed arbitrarily when a trade goes against the investor. A short-term position established for an election result should be reassessed if the outcome differs from expectations. A price decline alone does not turn it into a long-term investment. Conversely, a long-term research thesis should not be overturned solely by a few hours of noise.
Position size should be derived from the loss that can be absorbed, not from the return that is hoped for. Elections and central bank decisions can cause prices to move across levels quickly, and a stop order does not guarantee execution at its specified price. Capital allocation should also account for trading-venue, custody, withdrawal, and stablecoin credit risks. Even a correct directional judgment can fail as a trade if insufficient margin or an inability to move funds forces the position to close before the thesis plays out.
11.4 Hedging Is Not Costless Insurance
Reducing spot exposure and hedging with futures or options involve different costs. Futures hedges require attention to basis, funding rates, and margin. Options require attention to premiums, maturity, and volatility. Holding cash incurs an opportunity cost. Cross-asset hedges can also fail when correlations change. For example, a BTC short used to hedge a basket of small-cap tokens may not offset the larger liquidity discount those tokens experience during extreme conditions.
This report does not prescribe a single leverage ratio or position size suitable for every investor. A more actionable principle is to define in advance which events would invalidate the view, the maximum acceptable loss, and whether the position can be exited when the thesis fails. Strategies that rely on several venues operating normally should incorporate operational failure into stress tests rather than calculate only theoretical returns under normal conditions.
11.5 When to Upgrade or Downgrade the Base Case
An upgrade should require sustained improvement in at least two reasonably independent groups of evidence—for example, lower macroeconomic financing pressure together with renewed spot inflows—followed by confirmation from market breadth. If prices rise without supporting evidence, continued observation is more appropriate. A downgrade need not wait for every indicator to worsen. One major event capable of affecting system-wide funding or credit may be enough to require immediate reassessment.
For this report, the most important upgrade signal would be a transition from cumulative ETF outflows to persistent inflows, accompanied by improving stablecoin and spot demand and no further upward repricing of the rate path. The most important downgrade signal would be persistent inflation pressure combined with tighter cross-market financing and additional credit risks on-chain or at trading venues. Defining these invalidation conditions helps prevent optimistic narratives from expanding indefinitely as prices rise and explanations from shifting continually as prices fall.
Using this framework, HTX Research will continue tracking how the evidence evolves around the two central bank meetings in late October and the vote and economic data releases in early November.
12. Conclusion
12.1 The Election Is a Repricing Window, Not an Automatic Catalyst
As of October 15, 2026, the evidence supporting pre-election caution is more direct. The United States has resumed raising rates. Core inflation momentum requires continued monitoring. Spot BTC and ETH ETFs recorded cumulative outflows from the start of October through October 14. Stablecoin expansion at the margin remains limited, and Japanese financing conditions have also tightened relative to the past. These facts do not rule out a short-term rebound, but they require the quality of that rebound to be tested. Political outcomes can change risk premiums without independently resolving financing costs or the need for incremental demand.
Our central expectation for the pre-election period and immediate aftermath is therefore elevated volatility, reversals, and divergence. Before voting, the priority is whether macroeconomic shocks are being absorbed. During counting, the priority is the surprise relative to expectations and actual market depth. In the following one to two weeks, economic data and flows should be used to test the rebound. Toward year-end and into 2027, attention should shift to policy execution and business growth. Different phases require different evidence; a single election view should not be extended across every time horizon.
12.2 A Durable Trend Needs Both Capital and Institutional Support
If the election result becomes clear, inflation moderates, financing conditions stabilize, and spot capital returns consistently, BTC could lead a recovery that subsequently broadens to ETH and protocols with genuine demand. If policy news is favorable while outflows continue, localized thematic rallies are a more reasonable expectation. If macroeconomic and credit conditions deteriorate together, even a friendly political narrative may coexist with continued pressure on prices.
Over a longer horizon, crypto markets are experiencing institutional development and financial-market constraints at the same time. Stablecoins, custody, tokenized assets, and trading infrastructure may increase the industry’s practical usefulness. The same process also exposes crypto more deeply to traditional funding costs, portfolio risk management, and regulatory scrutiny. The 2026 midterms matter because they can change how these mechanisms advance, not because the historical calendar guarantees a particular return.
*The above content is not an investment advice and does not constitute any offer or solicitation to offer or recommendation of any investment product.
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