The Democratic sweep of the midterms could bring a crackdown on Wall Street as lefty leaders set their sights on a range of targets – from crypto and prediction markets to private credit and AI data centers.
Over the past two years, Trump administration officials have been able to make sweeping changes with the help of a GOP-controlled Congress, pursuing a deregulatory agenda and crypto-friendly policies.
But Dems are expected to try to unwind at least some Trump-era policies once they take control of both the House and Senate with decisive majorities in January.
Cryptocurrency and prediction markets are likely one of the first areas that will face heightened scrutiny – due to both the Trump administration’s relaxed oversight of the industries and his family’s ties to money-making firms.
President Trump has positioned the Commodity Futures Trading Commission, or CFTC, as the sole regulator of prediction markets like Kalshi and Polymarket.
But critics have said that approach just exploits a loophole that allows the betting platforms to evade sports gambling regulations and taxes — and allow teen users onto their apps.
Prediction markets have also faced backlash for their vulnerabilities to alleged insider trading, allowing government employees and people with privileged business information to rake in thousands from their bets.
Both Kalshi and Polymarket have added new anti-insider trading rules to their platforms.
Meanwhile, presidential son Donald Trump Jr. has served as a paid adviser to Kalshi and an unpaid adviser to Polymarket. His venture-capital firm, 1789 Capital, has led funding rounds for Polymarket and invested millions in the platform.
With Dems taking hold of the reins in Congress, crypto legislation like the CLARITY Act could also stall as lefties seek further consumer protections and target Trump’s own wealth gains from digital assets.
That legislation, backed by the crypto industry, would erect new guardrails around digital assets.
In his first year back in office, the president reported more than $1.4 billion in income related to cryptocurrency gains from his family’s firm, World Liberty Financial, and his memecoin.
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A record-breaking $6.3 billion hack of crypto exchange Binance last week has also sounded the alarm over potential risks to the industry, as the FBI has linked the attack to notorious North Korean cybercriminals.
“With Democratic control, it’s unlikely that we see progress on ongoing and new crypto legislation such as the CLARITY Act,” Martin Lee, market insights lead at DWF Labs, said Wednesday. “We could also see increased scrutiny on anything that President Trump has been associated with.
“The SEC and CFTC can continue to push forward their pro-innovation policies, although it may be slower,” Lee said – adding that a divided government is also likely to make retail investors more skeptical.
401(k) conundrum
Dems are likely looking to tighten Trump-era regulations in the alternative assets industry, as well — specifically a proposal to give private credit and crypto an easier path into 401(k) retirement plans.
Rep. Maxine Waters, (D-Calif.), the top Dem on the House Financial Services Committee, urged the Department of Labor to scrap the proposal, arguing it would expose millions of Americans’ savings to riskier investments while benefiting Wall Street firms.
The call came as critics have argued that private equity firms bear some responsibility for the cost-of-living crisis as they have bought up single-family homes, health care practices and child care services.
Private equity hardly endeared itself to Dems this election cycle — billionaires from Apollo Global Management and Blackstone Inc. poured a fortune into backing GOP candidates, according to Bloomberg.
Big banks may not be spared from the new Democratic majorities, either.
Sen. Elizabeth Warren (D-Mass.), the top Dem on the Senate Banking Committee, has already called on the DOJ to investigate Bank of America after the Wall Street giant admitted it violated anti-money-laundering rules, CNBC reported.
Dems have also pushed back on Trump-era proposals that would limit how much capital lenders need to hold as a buffer against potential losses, arguing it could leave the industry more vulnerable to bank failures.
Tech giants are bracing for an AI slowdown, as controversial data centers played a major role on election ballots across the country.
Plans for 800 to 1,000 data center projects across the US could be disrupted – especially ones in Texas, where James Talarico made history as the first Texas Dem elected to the US Senate since 1988 and Dem Rep. Gina Hinojosa clinched a shocking victory over GOP Gov. Greg Abbott.
“There is no way to sugarcoat that Democrats taking control especially over the Senate will create some major hurdles for AI and tech legislation in the Beltway over the next 2 years,” Dan Ives, partner at Yorkville Ives & Co., wrote in a Wednesday morning note.
He added that the “biggest worry of the night” for tech investors and leaders was the state of Texas, home to a significant chunk of data center projects.
Still, it’s not all bleak for Wall Street.
The Dow Jones Industrial Average surged 1,568 points, or 3%, on Wednesday, while the S&P 500 and Nasdaq rose 1.6% and 1.4%, respectively – a typical post-election move higher, according to Justin Buell, chief investment officer at Continuity Group.
“While a blue wave could spark volatility in certain sectors, such as tech and AI, given growing public opposition to the buildout of data centers, we believe markets can grind higher regardless of the outcome as investors applaud falling uncertainty,” he said.
Tracy Shuchart, senior economist at NinjaTrader, said she’s expecting a move away from the AI sector “that’s been kind of the darling trade over the past few years.”
Hyperscalers like Amazon, Meta and Alphabet could continue to do well, since a slowdown in AI spending could help their balance sheets bounce back, but chip stocks will likely suffer, she said.
Consumer staples, meanwhile, could rebound as investors bet Dems will try to pass legislation to counter Trump’s tariffs, since “that’s kinda what they ran on – we’re here for the middle class,” Shuchart said.
Ken Mahoney, CEO of Mahoney Asset Management, added that renewable energy stocks could also rebound as investors expect Dems to focus on clean energy initiatives.
