How Has BTC Performed After Four Historical Midterm Elections?

Author: Gemini, Deep Tide TechFlow

On November 3, the U.S. midterm elections are approaching. At this time, discussions about the "curse of risk assets" often arise in the market.

From a macro perspective, midterm elections do indeed affect risk assets, primarily due to "policy uncertainty." Who controls Congress directly relates to key issues such as future fiscal spending, tax policies, regulatory intensity, and the debt ceiling.

These expectations are often priced in by the market ahead of the elections; as uncertainty rises, funds instinctively become cautious, leading to a decrease in risk appetite.

Today, BTC has been widely integrated into traditional financial channels, increasingly resembling a high Beta risk asset, with its correlation to U.S. stocks, dollar liquidity, and global risk appetite significantly strengthened.

Therefore, the changes in policy expectations brought about by the midterm elections are likely to be reflected in BTC's market performance; however, it is important to note that this should not be interpreted as BTC being directly tied to election results. Rather, it is evident that BTC's sensitivity to macro risk appetite has been maximized during this cycle.

So, what is the actual impact of such macro shocks from midterm elections in history?

The Notion That BTC Always Drops During Elections Is Not Valid

We retrieved BTC market data from the past four U.S. midterm elections (2010, 2014, 2018, 2022) and found that the so-called "always drops during midterms" reflects a cognitive bias in the face of data.

If we look at the short-term effects of midterm elections, BTC exhibits drastic fluctuations and divergent trends.

In 2018, BTC faced a brutal washout, nearly halving in value, with a monthly drop of 45.5%. However, in 2010, it directly rose by 31.6% within 30 days post-election.

The idea that "BTC always drops during midterms" does not apply to all fixed periods. This indicates that in the short term, the conclusion of elections does not immediately eliminate divergences; instead, it intensifies the fierce competition between bulls and bears.

Moreover, this is just one variable, and BTC's market size, acceptance, and macro conditions differ in each four-year cycle.

In terms of long-term performance, BTC has almost achieved absolute positive returns in the year following elections.

The lowest increase occurred in 2014 (+23.0%), while the highest increase was in 2010 (+1580.0%). The most typical case is 2018, where a drop occurred post-election, but extending the holding period changed the outcome, resulting in a positive return of 45.2% after one year.

Liquidity Traps and Reallocation of Chips

Large capital is not afraid of long-term policy fluctuations; on the contrary, the short-term macro uncertainty brought about by elections is a natural scenario for them to engage in chip turnover.

In the face of risk-averse sentiments before and after elections, high-leverage bulls and panicked retail investors are prone to stampedes, handing over bloodied chips during the severe withdrawal within 30 days post-election. Meanwhile, smart capital takes advantage of the liquidity traps created by this macro noise, absorbing retail stop-loss sell-offs at low levels and accumulating long-term positions.

We also mentioned in another article that in the past month, the speed at which on-chain whales have been accumulating BTC has accelerated, even reaching a new high since February of this year.

For BTC, the so-called "midterm election curse" resembles a reallocation of chips utilizing macro noise. Funds that exited the market due to short-term macro panic easily turn into excess returns in someone else's financial report a year later.

(Risk Warning: The historical data sample is limited to four instances. The current U.S. dollar interest rate environment, ETF capital structure, and past cycles differ significantly. This article serves only as an objective data review and does not represent future trends; secondary markets should be wary of short-term liquidity risks.)

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