After the midterm elections, will the cryptocurrency industry see more investigations or actual legislation?

Author: Bankless

Translated by: TechFlow

TechFlow Preview: The 2026 U.S. midterm elections have officially kicked off. After barely weathering a hacker attack that stole approximately $6.3 billion from Binance, the crypto market now faces a political storm reshaping Washington's power landscape. Data from prediction market Kalshi shows a 94% probability of Democrats regaining control of the House, and a 75% chance of reclaiming the Senate.

If Congress shifts partisan control, lawmakers known for their strict scrutiny of crypto, such as Elizabeth Warren and Maxine Waters, will take charge of key committees. This means the focus will swiftly shift from pushing comprehensive crypto legislation (like the CLARITY Act) to intensive committee hearings, subpoenas for records, and investigative summons. From Trump family venture World Liberty Financial and its associated meme coins, to Binance and exchange security compliance, to prediction markets deeply involved in political polling and sports betting (Kalshi and Polymarket), all could be pulled into an intense spotlight of regulatory scrutiny.

However, congressional political inquiries do not equate to a complete halt in administrative regulation. The SEC and CFTC continue to steadily expand pathways for tokenized U.S. equities and compliant perpetual contracts using their existing statutory authorities; meanwhile, the sudden escalation of Iran tensions in the Middle East and military friction in the Strait of Hormuz are emerging as the most unpredictable variables likely to directly impact commodities, inflation expectations, and macro risk assets in the short term.

Having just endured and digested its largest-ever hacking attack, the crypto industry is approaching U.S. election day, while another massive cloud of uncertainty looms over the market.

Less than a week after hackers stole approximately $6.3 billion from Binance, the crypto industry must confront another potential massive shock: Democrats could win a landslide victory in the elections, allowing some of the industry's most stubborn critics to regain oversight authority in Congress.

But unlike the sudden hacking attack, this political threat has already been quietly brewing in plain sight. As of Tuesday morning, data from the Kalshi prediction market shows a roughly 94% probability of Democrats winning control of the House, and a roughly 75% probability of controlling the Senate.

This does not mean the election results have been fully priced in by the crypto market, but a change in congressional control hardly comes as a surprise.

The more critical question lies in how Democrats will wield this oversight power, and whether the latest developments in the Iran situation will completely overshadow Washington's political narrative.

From Inquiry Letters to Congressional Subpoenas: An Investigation Storm Looms

If Democrats secure a majority in the House, they will take over investigative powers across various committees, wielding the statutory authority to hold public hearings and issue subpoenas for internal documents or summon witnesses to testify. They have already signaled their intended investigative focus.

Elizabeth Warren and Maxine Waters, known in Congress for their hardline stance on crypto, began laying the groundwork as early as April 2025, demanding that the SEC properly preserve relevant records to investigate Trump's World Liberty Financial and potential conflicts of interest.

Other lawmakers have also called for reviews of Trump-linked $TRUMP meme coins, while Democratic Chair of the House Oversight Committee, Robert Garcia, has long listed the Trump family's crypto ventures and overseas commercial transactions as core investigative priorities.

Binance's recent security breach provides them with another perfect angle. In a public statement issued on October 30, Waters directly tied this security incident to Trump's earlier presidential pardon of Binance founder Changpeng Zhao (CZ), as well as the intertwined financial interests between Binance and World Liberty.

While these political and business ties have not been proven causally linked to the hack itself, this major breach undoubtedly gives Democrats a prime opportunity to push for stricter exchange cybersecurity measures, anti-money laundering defenses, and platform accountability mechanisms.

To some extent, this might not be entirely a bad thing. Given that the crypto industry has suffered devastating capital drains in recent waves of hacks, stricter external oversight of centralized exchange security could even bring tangible benefits. My concern lies in how broadly this scrutiny will ultimately spread.

Ideally, congressional investigations should focus on specific regulatory violations rather than dragging unrelated compliant crypto firms into the muck of political crossfire. However, prediction market platforms with similarly deep ties to the Trump family are highly likely to find themselves equally in the crosshairs.

After his investment firm 1789 Capital completed its investment last year, Donald Trump Jr. not only became a strategic advisor to Kalshi but also joined the advisory board of Polymarket.

Following a New York Times report revealing that Trump Jr. lobbied Republican state attorneys general against taking enforcement action against prediction markets, Warren promptly pressured these attorneys general to release full meeting transcripts. Just this past Monday, four Democratic senators formally submitted inquiries to social platform X, investigating whether Polymarket received preferential treatment for its ad placements on the platform.

Furthermore, Democrats have introduced the STOP Corrupt Bets Act, which aims to comprehensively ban prediction contracts involving elections, sports events, government decisions, and military conflicts. This measure will directly hit Kalshi's business core: sports and combo bets accounted for approximately 84% of its total volume this year, while election contracts made up only around 0.5%.

Meanwhile, the jurisdictional tug-of-war between the U.S. federal government and state regulators over who has the authority to oversee these prediction platforms is becoming increasingly heated. As Dustin Gouker of the newsletter The Event Horizon sharply noted, compared to the torrent of hearings that may come with Democratic control of Congress, the congressional inquiries the industry previously faced might even seem “as gentle as an ice cream social.”

Kalshi has clearly begun preparing for this political reality, recently hiring a lobbying firm closely tied to Hakeem Jeffries, who is highly likely to become the next Speaker of the House.

Given that the CFTC has been actively defending prediction markets against state regulator lawsuits, congressional scrutiny of these platforms could easily spill over onto the CFTC itself.

Fig.: Timeline of congressional investigation and regulatory milestones regarding crypto and prediction markets under Democratic control, along with power transition nodes

Regulatory Momentum Continues: Administrative Agencies Push Forward Compliant Pathways

However, increased congressional oversight does not necessarily mean that substantive regulatory advancements have ground to a halt.

Although the CLARITY Act targeting digital asset structures stalled in September, the SEC and CFTC continue to fully leverage their existing statutory powers to steadily clear paths for industry compliance.

Just two days after the CLARITY Act was shelved, the SEC issued a temporary innovation exemption allowing qualified trading venues to conduct tokenized U.S. equity trading directly on-chain. In October, the CFTC also formally sought public comment on rules for leveraged crypto trading and federally registered crypto markets. Today, the market has welcomed another concrete breakthrough signal.

CFTC Chairman Michael Selig officially announced that single-stock perpetual futures can begin trading on qualified U.S. regulated exchanges effective immediately.

Although trading venues still need to complete relevant entity registrations with the SEC and CFTC, product compliance filings, and clearing and custody arrangements, the regulatory approval pathway for this business has now been fully cleared. Currently, Payward has filed an application to offer such stock perpetual contracts via Bitnomial, while Lighter and Trade[XYZ], backed by NYSE parent Intercontinental Exchange (ICE) are also vigorously advancing their respective compliance filing processes.

Nevertheless, these administrative compliance advances are not entirely immune to political pressure. Warren has already publicly questioned the CFTC's enforcement track record and layoffs; once Democrats retake Congress, they are highly likely to subject agency approval decisions to tighter accountability reviews.

However, controlling Congress does not erase the statutory authority of administrative agencies. The likely scenario ahead is: even as regulators systematically advance compliance approvals, targeted congressional investigations and hearing storms will accelerate in parallel.

A Larger Macro Unknown: Escalating Middle East Geopolitical Tensions

But from an asset pricing perspective, an even less predictable force majeure stems from Iran. Multiple reports last week revealed that Trump is considering resuming large-scale military strikes against Iran after the midterms, directly fueling macro concerns about surging international crude oil prices, sticky inflation, and a fresh downturn in global risk assets.

The market briefly caught its breath on Monday. Trump initially stated he was not in a hurry to restart large-scale military operations, and hopes for diplomatic maneuvering drove crude prices to drop sharply. However, the Associated Press reported late Monday that U.S. forces had carried out limited strikes on Iranian targets near the Strait of Hormuz.

A U.S. government official described the strikes as a “defensive operation,” noting that diplomatic negotiations remain actively underway. The central suspense right now is whether this military friction will remain localized and isolated, or inevitably escalate into a larger-scale regional armed conflict.

The boundary between this localized friction and all-out conflict may ultimately determine the next phase trajectory for crypto assets. Investors have had weeks to fully digest and prepare for a Congress under Democratic control, but the evolving situation in Iran carries a much higher degree of unpredictability, and its actual impact on macro financial markets could far outweigh internal political games in Washington.

Let us hope for a peaceful resolution to these geopolitical tensions as soon as possible, as it concerns not only the token assets in our wallets, but also the safety and lives of countless civilians.