Midterm elections 2022: why they matter to crypto traders, and how

By Frances Yue

Hello, welcome back to Distributed Ledger, our weekly crypto newsletter that reaches your inbox every Thursday. I’m Frances Yue, crypto reporter at MarketWatch. I’ll walk you through the latest and greatest in the digital asset world this week.

Find me on Twitter at @FrancesYue_ to send feedback, or tell us what you think we should cover. You can also reach me through email to share your personal stories with crypto.

Crypto in a snap

Bitcoin lost 1.6% during the past seven days, and was trading at around $20,235 on Thursday, according to CoinDesk data. Ether edged down 0.3% over the seven-day stretch to around $1,539. Meme token Dogecoin surged 67.6% while another dog-themed token, Shiba Inu , gained 7.15% from seven days ago.

Crypto Metrics

Biggest Gainers  Price   %7-day return 
Dogecoin         $0.13   76.9% 
Arweave          $14.97  40.4% 
Mina Protocol    $0.75   21.4% 
Fantom           $0.26   20.1% 
Osmosis          $1.51   18.3% 
                         Source: CoinGecko as of Nov. 3 
Biggest Decliners  Price   %7-day return 
WhiteBIT Token     $10.02  -25.1% 
Aptos              $7.30   -20.5% 
Evmos              $1.83   -19.5% 
The Open Network   $1.59   -18% 
EthereumPoW        $6.18   -17.7% 
                           Source: CoinGecko as of Nov. 3 

Midterm elections’ impact on crypto

The U.S. midterm election day, which falls on Nov. 8 this year, is approaching. All 435 House seats and 35 of the 100 Senate seats are up for grabs.

Historically, the stock market tends to perform better after the midterm elections. Some investors expect crypto to rally as well following the election day on Nov. 8, as the correlation between bitcoin and major stock indexes remains high.

For 17 out of 19 midterm elections since 1946, the stock market performed better in the six months after the election than it did in the six months before it, according to a report by Charles Schwab.

It is mostly because investors face uncertainty in the months leading up to the election day, according to Mauricio Di Bartolomeo, chief strategy officer and co-founder at Ledn. “As things become clearer, investors become more confident and they bid up the market,” said Di Bartolomeo.

“If history is any guide, we just gotta get through next Tuesday, and the path forward looks a lot better,” said Timothy Holland, chief investment officer at Orion Advisor Solutions. “Seasonality is about to get better, and you’re gonna get through the midterms. You’re probably also going to get a divided government in DC, and the market likes gridlock,” noted Holland.

Still, this year could be different, as the stock market performance has already diverged significantly from its historical levels, with the S&P 500 down 27% year-to-date, much worse than the index’s average performance in previous midterm election years.

“I think given where interest rates are, I wouldn’t be surprised if this is one of those years where the rally fades back,” according to Di Bartolomeo. The Federal Reserve on Wednesday raised its key interest rate by 0.75 percentage point to a range of 3.75% to 4%, the highest level in 15 years.

“I believe the markets are gonna be less sensitive to any developments out from the midterms than they are to the Federal Reserve’s movements, to major economic data indicators or to any movements out of the Treasury.” said Joel Kruger, market strategist at LMAX Group.

In terms of crypto regulations, investors do not expect the midterm to have much of influence as most recent digital asset-related initiatives are bi-partisan, noted Di Bartolomeo.

Still, if Republicans take the House or Senate, with a Democratic president in place, it might be harder to pass new legislation, noted Bartolomeo. “I don’t think that that would be a crypto specific issue. I think it’s going to slow down regulation in general,” Bartolomeo said.

One of the bills that is most likely to advance through Congress was proposed by senators Debbie Stabenow, a Democrat from Michigan, and John Boozman, a Republican from Arkansas. The bill, if passed, will substantially expand the authority of the U.S. Commodity Futures Trading Commission to regulate digital commodities, according to Jeremy Liabo, partner at law firm Ropes & Gray.

“If you listen to the dialogue around the bill, criticism doesn’t line up along party lines.” Liabo said. “We will see changes to the bill though, before it actually goes out for a vote,” according to Liabo.

The Doge rally

Dogecoin rallied more than 67% over the past seven days, as billionaire Elon Musk, a vocal backer of the Shiba Inu-themed cryptocurrency, last week completed his deal to take over social media platform Twitter.

Some Dogecoin holders are hoping that Musk could push for wider adoption of the meme coin, by ways such as accepting the crypto for payment on Twitter. Musk tweeted Tuesday a picture of a Shiba Inu dog that wears a shirt with a Twitter logo.

In June, Musk’s SpaceX started accepting Dogecoin for some merchandise, after Tesla made a similar move in January.

Meanwhile, Changpeng Zhao, also known as “CZ,” chief executive at the world’s largest digital asset exchange Binance, said that cryptocurrencies could be used to charge some Twitter users for services. Zhao made the comments after Binance invested $500 million in Musk’s acquisition.

“We want to help solve immediate problems,” Zhao said on CNBC’s “Squawk Box” Monday. “Charging for memberships etcetera can be done very easily globally using cryptocurrencies as a means of payment.”

The Deribit hack

Crypto exchange Deribit lost $28 million from a hot wallet hack on Tuesday, adding to at least $3 billion losses from exploits in the digital asset space so far this year.

Client funds are safe while the company will use its reserves to cover the loss, Deribit tweeted Wednesday. “Deribit remains in a financially sound position and ongoing operations will not be impacted,” the company wrote on Twitter.

The hack is limited to the company’s bitcoin, ether and stablecoin USDC hot wallets, while any funds in cold storage were not affected, Deribit said. Hot wallets are those connected to the Internet, while cold storage means the crypto keys are offline for security. I wrote more here.

Crypto companies, funds

Shares of Coinbase Global Inc. (COIN) plunged 8.1% Thursday to around $55.80, and they were down 23% over the past five trading sessions. Michael Saylor’s MicroStrategyInc.(MSTR) shares edged up 0.1% Thursday to $248.44, while they were down 8.2% over the past five days.

Mining company Riot Blockchain Inc. (RIOT) shares lowered 6.1% to $5.50 Thursday, down 19% over the past five days. Shares of Marathon Digital Holdings Inc.(MARA) lost 3.7% to $10.50, and down 23% over the past five days. Another miner, Ebang International Holdings Inc. (EBON) saw shares down 0.6% to $0.32 on Thursday, while up 2.6% over the past five days.

Overstock.com Inc.(OSTK)’s shares went down 1.9% at $21.20. The shares traded 8.9% lower over the five-session period.

Shares of Block Inc. (SQ), formerly known as Square, dropped 1.3% to $53.91 and were down 10.5% for the week. Tesla Inc. (TSLA) shares gained 0.2% to 215.31%, down 4.3% over the past five days.

PayPal Holdings Inc.(PYPL) went down 3.7% to $76.55, down 12.4% over the five-session stretch. Nvidia Corp.(NVDA) shares gained 1.5% to $134.21, looking at a 1.9% gain for the past week.

Advanced Micro Devices Inc.(AMD) shares closed down 0.1% to $60.07 on Thursday, up 2.6% from five trading days ago.

Among crypto funds, ProShares Bitcoin Strategy ETF(BITO) was flat at $12.51 Thursday, while its Short Bitcoin Strategy ETF(BITI) lost 0.1% to $36.42. Valkyrie Bitcoin Strategy ETF(BTF) gained 0.3% to $7.81, while VanEck Bitcoin Strategy ETF(XBTF) rose 0.1% to $19.83.

Grayscale Bitcoin Trust(GBTC) advance 0.3% to $12.83.

-Frances Yue

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(END) Dow Jones Newswires

11-07-22 1652ET

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