Democrats’ Sweeping Victory Alters Landscape for Crypto, AI

This article originally appeared in Galaxy Research's weekly newsletter. Subscribe to get timely insights delivered to your inbox every Friday morning.

WHAT HAPPENED

Democrats won both the U.S. House and Senate by wide margins, guaranteeing divided government for the second half of President Trump’s second term. Democrats flipped seven Senate seats (with two still uncalled as of writing), 35 House seats, five governorships, and up to 12 state legislative chambers.

Democrats likely secured the fourth-best midterm performance on the House side since 1986 with a projected +35 to 41 new seats from their prior 214, which is behind losses for the incumbent president’s party in 2010 (-64) and 1994 (-54), almost even with 2018 (-42), and ahead of 2006 (-30). On the Senate side, Democrats’ performance places it near the top of the last 10 midterms, with +7 vs. the incumbent president’s party beating all but 1986 and 1994 (both -8) and 2014 (-9). Ballotpedia qualifies the Senate gains as a “wave” though the House margin still falls short of the site’s standard for that language. This is only the third time since 1986 that the opposition party flipped both Congressional chambers in a midterm election.

The most notable Congressional loss for digital assets advocates came in Ohio, where Jon Husted (R), who had filled J.D. Vance’s vacated seat, lost to former Senator Sherrod Brown (D). Brown had previously been Chair of the Senate Banking Committee but was ousted in 2024 by Sen. Bernie Moreno (R), a former car dealership owner who founded a firm using blockchain technology to trace vehicle title ownership and who was heavily backed by crypto advocates in 2024. Crypto political action committees had reportedly spent $40m supporting Husted and $24m opposing Brown. Other key crypto advocate losses included Bryan Steil (R-WI), head of the House Financial Services digital assets subcommittee; Zach Nunn (R-IA); Ann Wagner (R-MO); Bill Huizenga (R-MI); and Mike Lawler (R-NY) (who conceded though the race has yet to be called by AP). At the time of writing, the Chairman of the House Financial Services Committee, French Hill (R-AR), was ahead by 4400 votes in a race that is still too close to call.

Other digital assets supporters had better evenings, with Josh Gottheimer (D-NJ), Ritchie Torres (D-NY), and House Agriculture Chair GT Thompson (R-PA) all reelected. Senator Kirsten Gillibrand (D-NY), a leading Democratic voice on crypto and the chair of the Democratic Senatorial Campaign Committee, delivered a bigger-than-expected majority for the party in the Senate, possibly strengthening her standing in the caucus. Overall, Stand With Crypto counts 19 pro-crypto senators and 226 pro-crypto House members elected against eight anti-crypto senators and 106 anti-crypto House members. Industry critic Molly White’s tracker finds that in the 12 competitive races so far, the side backed by crypto and AI PACs lost nine, while the industry’s picks in safer races went 40 for 40.

With the Senate and House flipping to Democrats, committee leadership will also flip. Senator Elizabeth Warren (D-MA) is likely to become Chair of Senate Banking, while Rep. Maxine Waters (D-CA) is again positioned to helm the House Financial Services Committee.

Artificial intelligence advocates also faced setbacks, with the AI industry’s “biggest bet on a competitive general election race” going to Darline Graham in South Carolina, who lost to Annie Andrews. The data center fight was perhaps most consequential in Texas, where Democrats won every statewide office for the first time in three decades, though Republicans held control of the Texas Senate 19-12. Gina Hinojosa (D) defeated Gov. Greg Abbott (R) 53% to 46%, and Democrats also won lieutenant governor, attorney general, comptroller, and railroad commissioner.

Markets performed well immediately following the election, with bitcoin rallying back above $80,000 and the S&P 500 and Nasdaq each gaining over 1% on Wednesday, but broader markets rolled over Thursday morning, with tech, AI, data center names, and crypto all trading lower. At the time of writing, S&P 500 was -3.7% and Nasdaq 100 -5.5% on the day, bitcoin was trading at $75,888, just above its 50-week moving average ($75,838), while ether was trading -6.8% at $2249. The dollar held mostly flat while gold and oil rose.

OUR TAKE

Tuesday’s election result is already the biggest Senate loss for a president’s party since 2014, and the House is on track to be the fourth biggest midterm loss since 1986, or third if House gains top 2018’s 42 seats. A 260-seat Democratic House would be the biggest majority since 1991-93 when Democrats held 267. The House win is even more notable in 2026 given that in 1994 and 2010 the losing party held dozens of seats that leaned toward the other party, so there were plenty of easy pickups. Today’s House is much more sorted with fewer competitive districts. And the Democratic strength extended deep down the ballot, gaining five governorships giving them 21 trifectas (when one party holds the governorship and both chambers of the state legislature), the party’s most since 1992.

In a post on X, Vice President JD Vance wrote that “the reason we lost is the war” in Iran, and offered four fixes for Republicans: ending the war, focusing on cost of living and inflation, putting America first, and changing the U.S. relationship with Israel. At a press conference, Florida Gov. Ron DeSantis (R-FL) called the election “close to an extinction-level event for Republicans in many parts of the country” and added that it was a rejection of Republicans in Washington. “This midterm, no question, was a rebuke of the president and the Congress,” he later told Fox News.

Senator Jon Ossoff (D-GA) said in his victory speech that the Democratic victories were the “first sight of dawn” two years into Trump’s second term. Senator Ed Markey (D-MA), who himself beat Republican crypto advocate challenger John Deaton, posted on X about Big Tech executives, saying “they are going to need to plant new forests for all of the subpoenas.” Rep. Greg Casar, chair of the Congressional Progressive Caucus, called for AI CEOs to testify under oath. Politico reported that several major Washington law firms are hiring lawyers to help clients handle the new scrutiny. Incoming House Oversight Chair Robert Garcia warned Republicans to “lawyer up.” Fortune reported that Trump family businesses, including World Liberty Financial, would face additional scrutiny.

The big question is the extent to which Democrats focus on investigations and backward-looking scrutiny versus demonstrating to the country that the party is ready to lead. Tyler Williams, former Counselor to Treasury Secretary Scott Bessent, told me on the Galaxy Brains podcast this week that Democrats will at some point need to demonstrate the capability to govern before heading into the 2028 election cycle. That need could moderate their more partisan instincts.

Markets fell sharply Thursday on speculation that Democrats would increase scrutiny of AI, but another big story was AI’s setbacks in the states. No statewide data center measures were on the ballot this year. A proposed Ohio constitutional ban on data centers above 25 megawatt capacity failed to qualify, and a Massachusetts initiative is aiming for 2028. But local measures went overwhelmingly against data centers: of 41 on Tuesday’s ballot in 10 states, voters sided against data centers in 40. Twenty-seven of 28 restrictions passed, and all 13 measures that would have eased development failed. Ohio accounted for 21 of the 41, including 11 bans. The lone exception was the city of Harwood, North Dakota (population: 794). While Georgia had no ballot measure on data centers, Democrats won majority control of the Public Service Commission for the first time in decades, and the PSC approves Georgia Power’s build-out for large loads.

The Democratic Party’s success in Texas was among the most surprising contributions to AI jitters, with markets rattled due to the state’s key position in the ongoing data center buildout. Hinojosa beat Abbott handily, and her campaign rhetoric was aggressive on the data center issue. But while some of her language was blunt, Hinojosa’s policy position on data centers appears to be more moderate: her moratorium plan is a pause pending the passage of some future legislation, not a permanent ban. And her agenda is mostly rules rather than an outright ban: requiring union labor, protecting water supplies, and ending the nondisclosure agreements that make projects hard to track. Like Abbott, Hinojosa has said she wants to make sure Texans don’t pay more for power because of data centers, and she wants to end tax subsidies that cost the state billions in sales tax revenue. The blue victory in Texas didn’t create the data center pause – Abbott has already instituted it. Hinojosa’s plan overlaps with Abbott’s on cost allocation and tax breaks but goes further on how long a pause would last and what conditions come after it. And if the GOP Senate blocks her bills, the condition she’s cited for lifting her pause never arrives unless she lifts it herself.

The election results demonstrated a breakdown of President Trump’s coalition that will have implications across a range of policy matters, including many that we consider out of scope for our coverage. And while journalist Eleanor Terrett reported that House Democrats are discussing plans to expand Maxine Waters’ Crypto Investor Consumer Bill of Rights (her 2025 CLARITY amendment) into a broader crypto market structure bill, we previously wrote that we do not expect substantial movement in Congress on key digital assets legislation. In the absence of legislation, the Trump administration’s SEC, CFTC, and banking regulators have been clarifying the rules of the road for crypto under their statutory authorities, and they have two years left to complete that work. AI policy matters, however, could see more movement in the next Congress.

Divided government tends to be okay for markets broadly, but there are big questions looming about AI governance, safety, and impact on labor. We don’t view those questions as inherently partisan, so let’s hope that the next Congress can make productive, thoughtful policy the priority for the American people.