The "Election Effect" of Bitcoin: 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, in every election year, the S&P 500 index has been higher one year after the voting day. Bitcoin has gone through three complete midterm election cycles, and its price one year later has also been higher, but it has experienced declines in the weeks following each vote.

On November 3 of this year, the positions of the two markets are somewhat different. The U.S. stock market is close to historical highs, while Bitcoin is still recovering from a significant sell-off earlier. Historically, the performance of both can be viewed with some optimism one year later, but the interim trends may vary greatly.

However, how much reference value these historical data have for 2026 remains questionable. In the year prior to past midterm elections, the median maximum drawdown for the U.S. stock market was 16%, while this year it is only around 9%, meaning there isn't much ground to recover. Bitcoin has only three samples, and each midterm election has occurred between two to two and a half years after a halving, making it difficult to determine how much the price increase is related to the election itself.

Key Points

U.S. Stocks: Historically, the performance after midterm elections has been quite strong, but this year's pre-election market performance is also stronger than in previous years. Therefore, directly assuming that historical average gains will repeat is not prudent.

Bitcoin: The one-year returns for the three complete cycles are all positive, but they have all experienced further declines first. With only three samples, it is still not possible to confirm the existence of a reliable "election effect."

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

U.S. Stocks: Historical Performance is Impressive, but This Year's Starting Point is Different

From 1950 to 2022, there have been 19 midterm elections. In the 12 months following each election, the S&P 500 index has recorded gains, with an average increase of 15.1% and a median of 14.5%, even the weakest performance recorded an increase of 1.1%.

In contrast, in non-midterm election years, if we also take early November as the starting point, the average return for the following year is 7.2%, with about 70% of samples recording gains.

▲ Source: IOSG, calculated based on daily closing prices

Historical declines mostly occurred before elections. The median maximum drawdown in the year prior to midterm elections was 16%. Within the six-month observation window set around the voting day, market lows occurred before the voting day in 17 out of 19 elections.

Gains also often do not have to wait until after the voting ends to begin. Analysis from BlackRock shows that as election results become clearer, the U.S. stock market typically begins to rise about a month before midterm elections. In late October this year, the prediction market indicated a probability of about 93% for the Democratic Party to control the House of Representatives and about 68% for the Senate. This means that the situation where the president and Congress belong to different parties has been widely anticipated by the market and may not be an unexpected outcome on election day.

This does not mean that all policy impacts have been reflected in prices, but expected results may trigger smaller immediate market reactions than unexpected outcomes. Therefore, election day can serve as a reference point for observing market trends, but it may not necessarily be a turning point.

This year's market starting point is also different. In late October, the S&P 500 index was only about 3% away from the historical closing high set on October 6, while the maximum drawdown in the previous year was about 9%. In other words, there isn't much ground for the market to recover.

Historically, there have been five midterm elections that met two conditions: a pre-election increase of over 10% and a drawdown of less than 10%. These occurred in 1954, 1958, 1986, 2006, and 2014. The returns in the following year ranged from 1.1% to 33.2%, with a median of 6.7%.

Compared to the seemingly precise median numbers, this broad range is more noteworthy. These cases illustrate that a strong market may continue to rise after elections, but this is not sufficient to set reliable return targets for 2027.

▲ Figure 1. S&P 500 index returns in the 12 months following each midterm election. The blue bars highlight five historical cases that meet the conditions of "significant pre-election gains and shallow drawdowns" for comparison with 2026.

Historical experience leans towards optimism, but the next round of increases still requires support from corporate earnings and the interest rate environment.

Bitcoin: An Increase One Year Later Does Not Mean the Recovery Process is Easy

Bitcoin has a shorter history, and the holding process is also more challenging.

In the three complete midterm election cycles of 2014, 2018, and 2022, BTC experienced declines in the weeks following the voting day, but the price one year later was higher than on election day. The decline in 2022 was shorter, with BTC recording gains three months after the election. The short-term performance across the three cycles varies greatly.

▲ IOSG, calculated using CoinMetrics BTC PriceUSD data

Binance Research points out that the average increase of Bitcoin in the year following midterm elections is about 54%, which is basically consistent with our sample's average increase of 53.8%. However, the process of rising is equally important: the median return three months after the election is about -31%, while twelve months later it is about +45%. Even if investors ultimately see the recovery direction correctly, they may still endure considerable losses before the rise arrives.

▲ Figure 2. Median performance before and after midterm elections, with the voting day as the reference point, and the index set to 100. The S&P 500 sample covers 19 elections from 1950 to 2022; the Bitcoin sample covers three elections from 2014 to 2022. The lines in the figure only connect selected observation points and do not represent predictions.

However, these samples cannot independently identify the impact of the election itself. Each midterm election coincidentally occurs about two to two and a half years after a Bitcoin halving and is also in a bear market phase. The election in November 2026 will also be about two and a half years after the halving in April 2024.

With only three samples and two overlapping cycles, it is impossible to determine whether the election has had a substantial impact on this pattern.

Similarly, the median curve should not be treated as a price prediction. This curve summarizes results from different years and does not represent the complete market experience that investors have gone through in a particular cycle. Mechanically applying it to today's prices will only create a sense of precision unsupported by the data itself.

With the entry of spot ETFs and corporate treasury funds, the investor structure in Bitcoin has also changed. These channels can bring demand but may also transmit redemption pressure, financing pressure, and changes in risk appetite to the market.

What is truly worth remembering is that being optimistic about the performance in the coming year does not contradict the possibility of further short-term declines. As for when the decline will end, historical samples do not provide an answer.

What changes will the election bring to the crypto industry?

For the crypto industry, the most direct impact of the election comes from policy. In a situation where the market generally expects the president and Congress to belong to different parties, it is more important to pay attention to how the new Congress will adjust legislation, regulatory oversight, and personnel appointments in regulatory agencies.

The progress of the CLARITY Act reflects this uncertainty. On September 15, the Senate failed to pass a procedural motion to end debate and advance the bill with a vote of 49 in favor and 50 against. Subsequently, the Senate proposed a motion for reconsideration, so the bill is currently stalled but has not completely lost the chance for revival. However, before the election recess, the Senate did not hold a second vote, and the only remaining window for this Congress is the "lame duck session" after the election and before the new Congress takes office.

The next Congress will decide the leadership of various committees, legislative priorities, and the specific conditions for renegotiation.

▲ The above is a scenario analysis, not a prediction of legislative outcomes.

If the Republican Party retains control of the Senate, it may be more favorable for promoting industry-preferred policy proposals, but it does not guarantee the passage of bills. Similarly, Democratic control of Congress does not mean that bipartisan cooperation on legislation is impossible.

At the same time, regulatory agencies can still take action within their existing authority. Establishing rules and issuing staff guidance may help resolve some specific issues, but their applicability and durability may not compare to formal legislation.

The same election result may influence the U.S. stock market and the crypto industry through different channels. If the president and Congress belong to different parties, new fiscal spending plans may be constrained, alleviating some upward pressure on bond yields and supporting stock valuations. However, for crypto companies, legislative gridlock may also prolong the period of uncertainty regarding market structure rules.

This could lead to a divergence: financial markets welcome constraints on fiscal spending, while the crypto industry may be disappointed by the prolonged wait for a stable legal framework. Of course, neither outcome is inevitable; even if Congress is gridlocked, the executive branch and regulatory agencies may still push for policy changes.

What factors can support the market's continued rise to 2027?

My baseline judgment is that the outlook for U.S. stocks is generally optimistic, but the upward process will have twists and turns; the short-term trend for Bitcoin is harder to judge. This judgment is made after referencing history, not directly derived from historical data.

For U.S. stocks, sustained growth in corporate earnings and alleviation of pressure from bond yields will help the market rise further. If the upward momentum can spread from large tech companies to more companies, the recovery will be more convincing. Conversely, regardless of which party controls Congress, high inflation or earnings falling short of expectations will weaken bullish arguments.

For Bitcoin, I will focus on whether spot ETFs can continue to attract funds, whether liquidity improves, and whether Bitcoin can maintain its previous gains when the overall market weakens. If funds continue to flow out or financing pressure rises again, it would not be wise to easily conclude that the bear market low has passed.

The following three changes are particularly worth paying attention to:

The Federal Reserve's interest rate meeting on December 8-9: The Federal Reserve maintained interest rates at 3.75%-4.00% on October 28, with two members voting against it, and the market has begun to factor in the possibility of a rate hike in December. New economic forecasts will help determine whether the pressure from bond yields is easing.

Earnings and breadth of increases: Whether earnings growth and stock price increases can spread from the companies currently leading the index to more businesses.

Bitcoin capital flows: Whether institutional demand can be sustained for several weeks rather than just appearing on individual trading days.

Election results should be observed alongside these indicators and cannot replace them.

Conclusion

The most powerful finding in historical data is the high consistency of the U.S. stock market's continued rise after midterm elections. However, it should also be noted that the stock market is already quite strong ahead of the 2026 vote.

The insights provided by Bitcoin are different: in three complete cycles, the price is higher a year later, but investors have also experienced further declines. This helps to understand the risks of holding, but it is not sufficient to support a clear prediction for the next cycle.

The election on November 3 will affect the future policy environment. Whether the market can continue its recovery in 2027 will ultimately depend on subsequent corporate earnings, liquidity, and capital flows.

Main References

BlackRock------How History Views the 2026 Midterm Elections and Market Performance

https://www.blackrock.com/us/financial-professionals/insights/2026-midterm-elections-and-market-performance?utm_source=chatgpt.com

Edward Jones------Midterm Elections and the Market: Historical Lessons and Current Considerations

https://www.edwardjones.com/us-en/market-news-insights/stock-market-news/market-pulse/midterms-markets-lessons-history-considerations-today?utm_source=chatgpt.com

Binance Research Weekly Report------Minefields, Midterm Election Cycles, and Asymmetric Opportunities

https://www.binance.com/research/analysis/weekly-market-commentary-2026-03-11?utm_source=chatgpt.com

U.S. Senate------September 15, 2026, Proceedings and Vote on the CLARITY Act

https://www.dailypress.senate.gov/tuesday-september-15-2026/?utm_source=chatgpt.com

Federal Reserve------Federal Open Market Committee Meeting Schedule

https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm?utm_source=chatgpt.com

Polymarket------Power Dynamics of the 2026 Midterm Elections

https://polymarket.com/event/balance-of-power-2026-midterms?utm_source=chatgpt.com

Troutman Pepper Locke------In the Wake of the CLARITY Act's Failure, Agencies Move Forward Without Congressional Action or Certainty

https://www.troutman.com/insights/in-the-wake-of-clarity-acts-failure-agencies-move-forward-without-congressional-action-or-certainty/?utm_source=chatgpt.com

Historical tables and charts: IOSG uses Yahoo Finance S&P 500 daily closing prices (^GSPC, excluding dividends) and CoinMetrics BTC PriceUSD data for calculations.

This article is for educational exchange only and does not constitute any investment advice. Please indicate the source when reprinting and contact the IOSG team for authorization and reprinting guidelines. All projects mentioned in the article are not recommendations or investment advice.