Bitcoin and crypto regulation: implications of a Democratic Congress

3 November brought a sweeping US midterm election victory for Democrats. The result could redirect cryptocurrency regulation in the United States, with the party reportedly preparing to reconsider crypto market structure proposals that lacked support in Republican-led negotiations.

For an industry that spent years resisting what it called “regulation by enforcement,” the potential shift could have significant consequences. The Securities and Exchange Commission (SEC) pursued crypto companies for alleged securities violations in the absence of a comprehensive framework setting out how digital assets should be regulated.

An early signal came on Wednesday from crypto journalist Eleanor Terrett. She reported that House Democrats were considering expanding Rep. Maxine Waters' Crypto Investor and Consumer Bill of Rights amendment into a wider market structure bill for the next Congress.

Democratic provisions left out of the CLARITY Act could return under the proposal. These include measures to expand the SEC's supervisory powers over crypto markets and narrow the role of the Commodity Futures Trading Commission (CFTC). Tougher ethics restrictions could also target President Donald Trump and other federal officials whose business interests involve crypto. From January 2027, Democrats will hold both chambers of Congress. That control will strengthen their influence over financial legislation, committee investigations and scrutiny of federal regulators. Together, these developments have prompted questions about the future of crypto in the US.

Expanded SEC powers could revive crypto disputes

Whether Democrats will attempt to reinstate the regulatory approach long contested by much of the crypto industry remains a central question.

Enforcement was a cornerstone of crypto policy under the SEC's previous leadership. Lawsuits and disputes centred on whether companies' tokens and business operations were subject to existing securities laws. Without clear classification rules, exchanges, developers and investors also lacked certainty about their obligations. Many of these platforms consequently moved offshore. This approach created substantial tension between regulators and the industry. To bridge that divide, the Republican-backed CLARITY Act proposed a digital asset market framework that would place more control of the trading environment with the CFTC.

Shifting authority back towards the SEC through a Democratic proposal could therefore revive the core dispute over crypto market supervision. It could also result in several cryptocurrencies and decentralised finance (DeFi) products being reclassified as securities.

CLARITY setback broadens the policy contest

In July 2025, 216 Republicans and 78 Democrats backed the CLARITY Act's passage through the House. Senate talks subsequently stalled, however, amid disagreements over regulatory jurisdiction, DeFi, consumer protection, stablecoin-related banking concerns and ethics restrictions involving Trump.

According to Republicans, their September revision included 126 substantive amendments requested by Democrats. Even so, the bill fell short of the 60 votes required to invoke cloture in the procedural vote on 15 September.

Without substantial revisions, the original Republican-led framework now faces a more difficult path under Democratic control. Restrictions on public officials with crypto interests could instead become the legislative priority.

Whether elected officials should profit from crypto ventures while helping set the industry's rules has been challenged by Democrats. Their stronger hold over congressional committees will increase their ability to investigate potential conflicts involving the Trump family and other officials.

Separately, a federal framework for payment stablecoins was established by the GENIUS Act with bipartisan backing. Banking groups nevertheless continue to caution that stablecoin rewards could divert deposits from traditional lenders. Additional safeguards covering stablecoin products and their effects on the banking system could become a Democratic objective.

Crypto legislation need not come to a halt under Democratic control. Clearer digital asset rules have drawn support from lawmakers in both parties, despite differences over regulatory responsibility and the appropriate level of oversight.

Republicans will retain the White House, so any major bill must still go through the President before becoming law. Subject to congressional approval, the President also retains the power to appoint the heads of federal regulatory agencies.

AI slowdown risks weighing on crypto and equities

A strengthening correlation with AI shares presents another potential risk for crypto markets. Several Democrats have resisted faster development of advanced AI and data centre capacity. Congressional efforts to slow both, alongside concerns over AI companies' capital expenditure, could constrain growth in AI-related equities. Any resulting weakness could spread to crypto and add uncertainty to the outlook for cryptocurrencies.

More than 5% was wiped off the crypto market on 5 November, for example, following a sell-off in AI-related equities. Futures liquidations exceeded $1.1 billion within 24 hours. The pattern is not new: over the past few months, crypto prices have tracked AI shares closely, particularly when markets have fallen.

Ultimately, however, interest rates, liquidity and other macroeconomic factors remain central to risk asset performance. They are likely to dictate the market's longer-term direction.

Crypto outlook hinges on Congress

Over the next few years, legislation will be a major influence on crypto market development, with the new Congress helping define the outlook. While market participants await lawmakers' approach in January, investors could remain on the sidelines and scale back near-term bull market expectations. Whether lawmakers will revive the CLARITY Act in a lame-duck session before January remains unclear.