The second Trump administration has created a boon for a relatively new crop of financial companies in the digital finance industry. Some traders are positioning for that to change after Tuesday’s US midterm vote.

Investors bet that a Democrat sweep, in which the party takes both chambers of Congress, would likely tighten the regulatory stance on crypto and prediction markets, among others. Plus, President Donald Trump and his associates may face a wave of investigations.

Options positioning shows growing skepticism around crypto companies. The cost of protection against a 10% drop in crypto exchange Coinbase Global Inc. in the next month relative to a similar rally is sitting near the highest level since April. For Strategy Inc., the measure is at the highest level since June.

And some on Wall Street are starting to pull money from crypto stocks. The Global X Blockchain exchange-traded fund and the Amplify Blockchain Technology ETF, which track crypto-linked equities, both posted outflows last month.

“There’s an understanding that some of the benefits that crypto companies have seen from regulatory changes made by the SEC and CFTC are not necessarily permanent and will depend on the outcome of elections,” said Mark Palmer, senior equity research analyst StoneX Financial.

While some weakness from election outcomes has been priced in, Palmer expects that crypto stocks could have a negative knee-jerk reaction on Wednesday if the Democrats win the House by a substantial margin.

Democrats, along with a few Republicans, blocked the advancement of the so-called Clarity Act in September, sending stocks like Coinbase and Circle Internet Group Inc. tumbling. The Clarity Act would have made the Commodity Futures Trading Commission the primary regulatory authority of the digital assets industry.

“Given what we expect the outcome from the midterm” to be, “I just don’t think the Clarity Act would come back in 2027,” said Owen Lau, an analyst at Clear Street. “Some of that may have already been priced into the market.”Shares of Coinbase tumbled 23% in October, while Galaxy Digital Inc. lost 30%, clocking the worst month since 2022. Strategy and Bullish saw declines of 15% and 32%, respectively. Bitcoin prices fell 7.4% last month.

A new setback for the industry took place in late October, when hackers attempted to siphon off $6.3 billion from crypto exchange Binance in the largest heist in crypto history.

The high-profile hack could lead to “greater regulatory scrutiny of cybersecurity, custody, operational safeguards and customer asset protection,” Morgan Stanley analyst Michael Cyprys wrote in a note to clients.

Crypto companies like Coinbase, Bullish and Circle have tried to diversify away from solely crypto trading and tokens toward newer products like tokenization and prediction markets, but much of their revenue is still coming from crypto.

If Republicans maintain their control of Congress — an unlikely scenario, based on the recent polls — crypto stocks will probably see a relief rally, Lau said.

If Democrats do take the House and Senate, Senator Elizabeth Warren could become the head of the Senate Banking Committee, which has legislative oversight of cryptocurrency and digital assets, according to TD Cowen analyst Jaret Seiberg. That would be the “most negative election outcome for crypto as Warren is a crypto skeptic who has led the charge against the Clarity Act,” he wrote in a late October note.

Even so, Seiberg added that “Warren cannot stop regulators from adopting policies positive for crypto,” while Trump will probably keep favoring the sector and veto bills that limit what his regulators can do.

A lot will depend on how Democrats determine their priorities, both in and beyond the financial system, analysts say.

“There’s a lot of development on the digital innovation front,” said Hyunsu Jung, CEO of Hyperion DeFi Inc. A new majority in Congress could “prioritize other efforts,” like addressing rekindling inflation and conflict in the Middle East, while allowing regulators like the CFTC and Securities and Exchange Commission to continue making rules.

Justin Slaughter, senior advisor at Paradigm, agrees.

“The choice Democrats have to make is — do you choose to go after a few things really well, or do you try to do the whole waterfall?” he said.

Prediction markets, which have seen strong federal support under the Trump administration, could also face regulatory setbacks and legal challenges if Democrats win. On the contrary, exchanges like Cboe Global Markets Inc. and CME Group Inc. could see their positions strengthen under a Democratic majority, as a stricter regulatory environment would benefit established incumbent exchanges over newer, less regulated platforms. Last month, Cboe won US regulatory approval to become the first securities exchange to list options contracts tied to performance metrics for publicly traded companies.

While investors are looking to midterm elections results for near-term impacts on emerging financial stocks, StoneX’s Palmer said focus will soon shift to what the industry will look like after Trump’s current administration ends.

“With the 2028 presidential contest really kicking off after the 2026 midterms, there’s going to be quite a bit of both scrutiny and conjecture with regard to what different candidates would mean for the crypto space on both sides of the fence,” he said.