IOSG | Bitcoin's "Election Effect": A Political Catalyst, or Coinciding with the Halving Cycle?

Author: Darko | IOSG Ventures

Since 1950, the United States has held 19 midterm elections. According to our statistics, one year after each election, the S&P 500 index has been higher than on voting day. Bitcoin has gone through three complete midterm election cycles, with prices also higher one year later, but it fell for a period in the weeks following each vote.

On voting day this November 3, the two markets were in different positions. US equities were near historical highs, while Bitcoin was still recovering from a previous major sell-off. Looking at history, it is reasonable to be somewhat optimistic about both assets' performance one year out, but the intervening trends could differ significantly.

However, how much reference value these historical data hold for 2026 remains questionable. In the year preceding past midterm elections, the median maximum drawdown for US equities was 16%, whereas this year it is only around 9%, meaning there is limited room to recover losses. Bitcoin has only three samples, and each midterm election coincides between two to two and a half years after a halving event. With the cycles overlapping, it is difficult to assess how much of the rally is attributable to the elections themselves.

Core Takeaways

US Equities: Historically, post-midterm election performance has been quite strong, but this year's pre-election market performance is stronger than in previous years. Therefore, it is unwise to directly assume that historical average gains will repeat.

Bitcoin: One-year returns across three complete cycles have been positive, but each first experienced further declines. Based on only three samples, a reliable "election effect" cannot yet be confirmed.

Policy: Congressional control will influence legislation and regulation in the crypto industry. However, the core factors determining market direction remain corporate earnings, interest rates, and capital flows.

US Equities: Strong Historical Performance, But a Different Starting Point This Year

From 1950 to 2022, there were 19 midterm elections. Over the 12 months following each election, the S&P 500 index posted gains, with an average increase of 15.1% and a median of 14.5%. Even in the weakest showing, it rose by 1.1%.

In contrast, in non-midterm election years, using the same early-November starting point, the average return over the subsequent year was 7.2%, with approximately 70% of samples posting gains.

Source: IOSG, calculated based on daily closing prices

Historical downturns mostly occurred prior to elections. In the year preceding midterm elections, the median maximum drawdown for the market was 16%. Within the six-month observation window centered on voting day established by the research, market bottoms appeared before voting day in 17 of the 19 elections.

Gains also do not necessarily have to wait until voting concludes to begin. Analysis from BlackRock shows that as election results become clearer, US equities have historically tended to start rising roughly a month before midterm elections. In late October this year, prediction markets priced in a roughly 93% probability of Democratic control of the House and a 68% probability of controlling the Senate. This implies that a divided government situation has already been widely anticipated by the market and may not come as a surprise on election day.

This does not mean all policy impacts have been fully priced in, but expected outcomes may trigger a smaller immediate market reaction compared to surprises. Therefore, while voting day can serve as a temporal reference for observing market trends, it is not necessarily the turning point.

The market's starting point this year is also different. In late October, the S&P 500 index was only about 3% away from its historical closing high set on October 6, while the maximum drawdown over the prior year was approximately 9%. In other words, there is limited ground for the market to recapture.

Historically, five midterm elections simultaneously met two conditions: pre-election gains exceeding 10% and a drawdown of less than 10%. These occurred in 1954, 1958, 1986, 2006, and 2014. Returns in the following year ranged from 1.1% to 33.2%, with a median of 6.7%.

Rather than the seemingly precise median figure, this broad range warrants greater attention. These cases indicate that strong markets may continue to rise after elections, but they are insufficient to set a reliable return target for 2027 based solely on them.

Figure 1. S&P 500 index returns over the 12 months following each midterm election. Blue bars highlight five historical cases meeting the criteria of "larger pre-election gains and shallower drawdowns," used for comparison with 2026.

Historical experience leans optimistic, but the next leg up will still require support from corporate earnings and the interest rate environment.

Bitcoin: Gains One Year Later Do Not Guarantee an Easy Recovery Process

Bitcoin has a shorter history, and holding it has proven even more arduous.

In the three complete midterm election cycles of 2014, 2018, and 2022, BTC fell within the weeks following voting day, but its price one year later was higher than on election day. The decline in 2022 lasted relatively briefly, with BTC posting gains by three months post-election. Short-term performance varied significantly across the three cycles.

IOSG, calculated using CoinMetrics BTC Price USD data

Binance Research notes that Bitcoin's average gain within one year post-midterm election is approximately 54%, aligning closely with our sample's average of 53.8%. However, the path to gains matters equally: the median return at three months post-election is approximately −31%, while at twelve months it is around +45%. Even if investors ultimately get the recovery direction right, they may still endure significant losses before the rally arrives.

Figure 2. Median performance before and after midterm elections, normalized to 100 on voting day. S&P 500 sample covers 19 elections from 1950–2022; Bitcoin sample covers three elections from 2014–2022. Lines in the chart only connect selected observation points and do not represent predictions.

Nevertheless, these samples alone cannot isolate the impact of the elections themselves. Each midterm election also coincidentally occurs roughly two to two and a half years after a Bitcoin halving, and always falls within a bear market phase. The November 2026 election also falls about two and a half years after the April 2024 halving.

With only three samples and overlapping cycles, it is impossible to determine whether the elections have substantively influenced this pattern.

Similarly, the median curve should not be treated as a price forecast. This curve aggregates results across different years and does not represent a complete market cycle that investors actually experienced during any single run. Mechanical application to today's prices merely creates a false sense of precision that the data cannot support.

As spot ETFs and corporate treasury funds enter the space, Bitcoin's investor structure has also evolved. These channels can drive demand but may also transmit redemption pressure, leverage pressure, and shifts in risk appetite to the market.

The key takeaway is that being bullish on performance over the coming year is not contradictory to acknowledging that short-term downside risks remain. As for when the decline will end, historical samples provide no definitive answers.

What Changes Will Elections Bring to the Crypto Industry?

For the crypto industry, the most direct impact from elections stems from policy. With widespread market expectation of a divided presidency and Congress, more attention should focus on how the incoming Congress will adjust legislation, regulatory oversight, and appointments to regulatory agencies.

Progress on the CLARITY Act exemplifies this uncertainty. On September 15, the Senate failed to pass a procedural motion to cloture debate and advance the bill, with a vote of 49 in favor and 50 against. Subsequently, a motion for reconsideration was filed, leaving the bill currently stalled but not entirely without chances for revival. However, the Senate did not hold a second vote before the election recess, leaving the sole remaining window for this session as the "lame-duck session" between the election and the swearing-in of the new Congress.

The incoming Congress will determine committee leadership, legislative priorities, and the specific parameters for renegotiation.

This is a scenario analysis, not a prediction of legislative outcomes.

If Republicans retain control of the Senate, it may favor advancing policy frameworks preferred by the industry, though passage is not guaranteed. Similarly, Democratic control of Congress does not preclude the possibility of bipartisan legislative cooperation.

Meanwhile, regulators can still take action within their existing authority. Establishing rules and issuing staff guidance may resolve certain specific issues, but their scope and durability may not compare to formal legislation.

The same election result could impact US equities and the crypto industry through different channels. If the presidency and Congress are divided, new fiscal spending plans may face constraints, potentially easing upward pressure on bond yields and supporting equity valuations. However, for crypto enterprises, a legislative deadlock could prolong uncertainty regarding market structural regulations.

This divergence may play out: financial markets might welcome constrained fiscal spending, while the crypto industry grows disappointed by the prolonged absence of a stable legal framework. Of course, neither outcome is inevitable; even with a congressional deadlock, the executive branch and regulators may still drive policy changes.

Which Factors Could Support Markets Continuing to Rise into 2027?

My baseline assessment is: US equity prospects lean broadly optimistic, albeit with a bumpy climb; Bitcoin's short-term trajectory is harder to judge. This judgment is drawn with historical context in mind, rather than mechanically extrapolated from past data.

For US equities, sustained corporate earnings growth and easing pressure from bond yields will support further market advances. Broadening the rally from mega-cap tech stocks to a wider universe of companies would also strengthen the case for recovery. Conversely, persistently high inflation or earnings misses would weaken bullish arguments regardless of which party controls Congress.

For Bitcoin, I will monitor whether spot ETFs sustain capital inflows, if liquidity improves, and whether it holds onto prior gains during broader market weakness. If capital continues to exit or leverage pressures resurface, it would be premature to declare the bear market bottom has passed.

Three developments warrant particular attention:

FOMC Meeting on December 8–9: The Federal Reserve kept rates steady at 3.75%–4.00% on October 28, with two dissenting votes, as markets began pricing in a potential December rate hike. The latest economic projections will help clarify whether bond yield headwinds are abating.

Earnings and Breadth of Rally: Whether earnings growth and stock price appreciation can broaden beyond currently leading index components to encompass more companies.

Bitcoin Capital Flows: Whether institutional demand can sustain over consecutive weeks, rather than concentrating only on isolated trading days.

Election outcomes should be monitored alongside these indicators, not in place of them.

Conclusion

The strongest finding from historical data is the remarkable consistency of US equities continuing to rise after midterm elections. Yet it must also be acknowledged that stock markets entering the 2026 vote are already fairly robust.

Bitcoin offers a different lesson: across three complete cycles, prices were higher one year later, yet investors endured further declines along the way. While this aids in understanding holding risks, it falls short of providing a solid basis for forecasting the next cycle.

The November 3 election will shape the future policy landscape. Whether markets can sustain recovery into 2027 will ultimately depend on forthcoming corporate earnings, liquidity conditions, and capital flows.