The industry's ability to transform into a truly bipartisan force will be the core test in the next phase.

Written by: Long Yue, Wall Street Insights

The cryptocurrency industry enjoyed two years of political dividends in Washington, but this situation abruptly halted as the Democratic Party swept the midterm elections in Congress.

According to Bloomberg's report on November 7, after the Democratic Party gained control of Congress, the crypto industry will face harsher legislative conditions, more intensive Congressional investigations, and a deep review of the Trump family's crypto interests. The policy dividends the industry previously bet on due to the Republican Party are now at risk of being repriced.

This turnaround did not come suddenly. In September this year, the Senate failed to advance the Clarity Act, which could have established a regulatory framework for exchanges and digital asset companies, due to entanglements with Trump’s crypto interests, controversies over stablecoin revenue distribution, and differences in investor protection. With the election results now confirmed, the underlying logic of this debate has changed.

Two years of political dividends, one night of upheaval

Over the past two years, the crypto industry has gained a political environment that most in the industry have longed for: a president who prioritizes digital assets as a national issue, regulatory agencies paving the way for wider application, and a Republican-controlled Congress that is highly sympathetic to the industry's agenda.

Trump not only personally launched digital asset products but also repeatedly invited crypto executives to the White House, incorporating the industry's demands into his political agenda. However, his personal financial interests in crypto have often obstructed the industry’s efforts to garner broader political support.

Austin Campbell, a part-time professor at New York University's Stern School of Business and a former banker, bluntly stated, "Many important figures in the crypto space have deeply tied themselves to the Trump family, and these costs are likely to need to be paid one by one now."

Democratic takeover, where will the regulatory scale tip?

After the Democratic Party took control of Congress, it has clearly proposed to make substantial modifications to the Clarity Act, with core demands including: stricter ethical restrictions, stronger consumer protection, and greater regulatory authority for the U.S. Securities and Exchange Commission (SEC) over digital assets.

This direction has a clear divergence from the regulatory framework the crypto industry sought under Republican leadership. However, Adam Minehardt, Chief Policy Officer of the Hyperliquid Policy Center, believes there is still a glimmer of hope: "The industry will at least enter a defensive posture in the early stages, waiting to adapt to the new leadership."

Meanwhile, the power dynamics of the Democratic Party in Congress are also being reshaped. A strong critic of the crypto industry, California Congresswoman Maxine Waters, will gain greater influence in the House Financial Services Committee; Massachusetts Democratic Senator Elizabeth Warren is expected to become chair of the Senate Banking Committee.

Minehardt stated, "You will see a genuinely empowered oversight agenda... We have already received signals from different members' offices — they will pull various strings to see where it leads."

Former allies, now subjects of investigation

The crypto industry’s political gamble is now facing backlash.

In 2024, the crypto lobbying group invested millions of dollars in the campaign of Ohio Senator, trying to defeat Democrat Sherrod Brown. However, the election results showed that Brown successfully defeated Republican Senator Jon Husted, returning to the Senate. According to the research firm Capstone, Brown is likely to take a key position on the Senate Agriculture Committee — the committee responsible for overseeing the Commodity Futures Trading Commission (CFTC), which is one of the key regulatory agencies for the crypto industry.

The Democratic control of Congress also significantly enhances the investigative authority over Trump’s business interests. Congressional members have previously sought information disclosure related to the president and his family's projects. Trump's camp has consistently denied any conflict between his business interests and presidential duties.

Tyler Gellasch, CEO of the Healthy Markets Association, pointed out that Congress has various tools to pressure regulatory agencies, including budget authority — which can limit agencies' resource allocation on specific policy issues. He stated that the Republican Party had previously used this tactic for years to block the SEC from implementing political spending disclosure rules, and the Democrats can similarly do the same.

Existing achievements difficult to reverse, but market challenges remain

Despite the reversal in political winds, some of the achievements the crypto industry has previously accumulated are not easily overturned. The repeal of federal stablecoin legislation requires new legislation, and the SEC and CFTC's ongoing work to formulate digital asset rules can continue during Trump's term, although future administrations may reconsider agency decisions.

Challenges at the market level cannot be overlooked. Bitcoin prices are still far below historical highs, even though the regulatory easing and political support during Trump's administration had sparked market expectations for a "golden age of digital assets."

Security issues have also raised alarms again. Binance recently suffered a hacking incident resulting in a loss of $6.3 billion, and has since restored almost all the stolen cryptocurrency through a combination of corporate treasury funds and two insurance funds.

Peter Atwater, a part-time economics professor at the College of William & Mary, stated, "The crypto industry needs to make hacking incidents disappear from the headlines. Repeated exposure will have an impact. Whether this will drive the Democrats to swing the regulatory pendulum back, emphasizing security and stability more, is worth paying attention to."

Bipartisan approach may become the industry's new path

From a longer-term perspective, the future of the crypto industry does not entirely depend on a political alliance with Trump. Digital assets have extended to areas such as investment funds, stablecoin payments, and financial infrastructure, involving numerous institutional investors whose interests transcend any single government's term.

Industry advocates have begun to actively emphasize a bipartisan stance. Ji Kim, CEO of the Crypto Innovation Committee, stated, "Digital assets have always been a bipartisan topic, and we are ready to collaborate with both new and old members of both parties."

For an industry seeking to cross the political spectrum and expand its user base, minimizing party labels may be a more robust path than continuing to bet on a single political force.