Purple Tornado

The midterms in the United States produced the largest electoral dislocation since 1974, a time before many of our readers (and most, if not all, of our staff) were alive. Democrats swept the board, down to the most unlikely wins (such as both houses of Texas state government, plus the governor’s mansion).

The moving and shaking will have massive implications for the U.S. But the implications may be just as dramatic for the rest of the world.

This was a crushing defeat for the Trump coalition in particular, and a massive win across the entire Democratic party. However, as with all things, painting with a broad brush obscures a lot of the granular data, so I want to pick apart some specific themes we are seeing.

The first is that the wins by Democrats were not uniform. There were a lot of wins! But the details belie the idea that  the electorate simply voted “Yay Democrats!”

What we saw instead was this:

Right at the top, you see something interesting: Texas. For those of you who did not follow Talarico’s campaign, he did not run as a coastal, woke-adjacent Democrat. This was something much more akin to a Blue Dog moderate campaign. There was similar outperformance in Iowa, in Kansas, and in Ohio, where Democrats who look more like the old-school Blue Dogs were outperforming. 

On the other hand, if we look at those who are more aligned with the left-wing, such as MN and ME, we see significant underperformance. Maine, in particular, is perhaps the most important individual result in the entire race: in the largest blue wave in memory, a New England Republican nearly won. Why? She was boring, normal, and didn’t fall in line with Trump. 

Susan Collins may be out of Congress, but the lesson of Susan Collins is arguably the most important one in this election.

Secondly, the night was not a total defeat for Republicans, though it was obviously the largest setback they have suffered in a very long time (echoing the 2008 wipeout). However, there is one major state that bucked the trend: Florida. Why?

DeSantis has been relentlessly focused on execution in that state. In addition to a large party registration advantage, they also have significant governance wins: smaller state government, efficient results, permitting reforms and building, and pulling in jobs. In short, he toned down a lot of the culture war nonsense and ramped up a lot of the “just do the job” nonsense, which is the exact same message that many of the Blue Dog Democrats have been pushing.

Republicans held on to the governorship and the Senate seat that were up for grabs in Florida, in one of the very few bright spots for them.

This brings us to the single biggest winner of the night: Jon Ossoff. You know who he is, right? If not, you should, because there’s a real chance you are looking at the next president of the United States. Ossoff is the guardedly pro-tech (but anti-AI binge), guardedly pro-crypto (but anti-corruption), very community focused moderate Democratic senator from Georgia. He just won an ~18 point victory over his opponent, and clearly cemented himself as one of the strongest voices in the Democratic party.

Again, look at that: 18 points. In Georgia. Which was a red state before it was Ossoffied.

When you compare that to Al-Sayed pulling out a roughly 6 point win in much bluer Michigan or Jackson narrowly taking out Susan Collins in much bluer Maine, this is a significant signal.

What independents, persuadable Republicans, and most Democrats responded to most strongly was, essentially, the old Bill Clinton platform: it’s the economy, stupid.

The Democrats who focused on affordability, bringing along those outside the 1%, and avoided the culture war nonsense ran up the largest margins. That’s an important detail, so let’s zoom out on it for a moment.

From the first George W Bush election forward, we have been experiencing federal political instability unprecedented in the modern era. To find anything comparable, you have to go back to the 1800s. From 2000 to present, large changes at the federal level have become the norm, and the last era of relative stability was, well, Bill Clinton, and prior to that, Reagan.

Why?

First, there’s a large group of voters who voted Obama -> Trump -> Biden -> Trump -> Blue Wave in 2026. That’s quite the record! And it tells you, given how much they are swinging back and forth, that neither party is really addressing their core concerns.

When you poll them, when you ask them, when you try to figure out what they are mad about, the answer is usually pretty simple: affordability, the economy, and not trusting the people in charge. That manifests as a very anti-incumbent flavor, and will likely keep manifesting as such until someone actually listens to them and begins addressing their concerns, like the Blue Dog Democrats who were just elected have promised to do, or like DeSantis was doing in Florida.

This also means that the Democrats grip on power is more fragile than it appears, if they don’t receive this lesson. Remember how the Dems were driving everything in the Obama era? That didn’t last. Remember how Republicans had the House, the Senate, and the presidency as recently as two years ago? That also did not last.

The mandate the Democrats won in the midterm is tremendous, but only if they read it correctly: bread and butter issues on economics and good governance are what the people want. I think, in fact, we can conclusively say that based on the results of the election when you look beyond just the Democrats.

Referendums were also a big topic this year, and across the board, we saw almost complete and utter failure for several things: data center permitting (a revolt against big tech and the 1%), raising taxes (with NC lowering them despite electing multiple Democrats, and even CA both rejecting a proposed wealth tax and banning future taxes of certain types), and YIMBY reforms (see NY stripping away the bureaucratic state). This is the message of those swing voters: tax less, spend less, do your damn job.

If the Democrats receive that message and lean into the moderates who just swept into power, their odds look very good for 2028 and forward, and it may signal the end of our hyper-partisan political era of prioritizing making the other side angry vs. actually delivering for the American people. If they fall back into their own habits, it’s likely 2028 is going to be another regime change, and then 2030 after it, and so on.

The American people are growing increasingly mad about this, and the long arc of history shows that this level of polarization and failure will only be tolerated for so long inside the system before calls to change the system begin. Remember: the first-time voter in this election was 8 years old when Trump became president the first time.

What is your view of the government if all you have seen is the 2000-onward window from the chart above, after all?

Democrats now have a massive fight that is about to break out internally: Warren vs. the moderates. Already, news has broken that the Warren far-left economic wing wants to wage war against big tech, crypto, prediction markets, and more. They are calling for congressional investigations, prosecution, civil penalties, and the destruction of companies who opposed them.

This is, in short, the Biden playbook from 2020, turbocharged. 

On the other side are a significant block of the new Democrats who just won in the South and the Midwest, who thus far appear to be of a very different character than the highly partisan, highly antagonistic New England branch. They are, in short, riding into office on a wave predicated on a return to normalcy and politics that focus on affordability and regular people.

These two factions are about to clash. The winner will likely be determined by how organized and capable the Warren wing is of running over the new folks, and how many on the Democratic side are willing to turn a blind eye to the fact that Warren’s behavior was a significant factor in electing Trump in 2024.

As a counterweight: Jeffries is likely the most powerful Democrat now, not Schumer, not Warren. He rules the House with a massive, historical majority; there are likely 260 or more Democrats in the House. 

This is an insane, deranged, wild number. 

It means that he’s going to be able to pass bills without having to court either the far left or any Republican votes, and a large, confident governing majority there also means the House is likely to be able to correct for any outlier behavior from the Senate, as a single senator hell bent on driving the party into a ditch is going to slam into the new blue wall in the House.

Note that most of the elected House officials are also younger: this is a different brand of Democrat. Warren, for those who don’t remember, is almost 80 and has spent more time in the Senate than some of the incoming House members have even been alive. They are, in many ways, from different countries. I’m not so confident the House is going to share the priorities of the Senate here.

With that said, here are some things I am going to confidently predict based on the results:

Data centers are dead, at least under the old way of doing things. The tax breaks are going away. The favorable deals with water or power authorities are gone. They are going to be asked to pay full freight, maybe with a premium, in the areas where they can be built.

Hot take: this is a good thing. There’s no need to subsidize these. If AI is important enough that we need it, the economic returns will be there and this will raise the marginal price of AI somewhat. That’s fine. If it has excess value, people will pay for it. On the other hand, if this is a bubble, as David Morris and I have previously speculated, this is going to help deflate it and limit the damage.

In either case, this is a reasonable outcome, and most of the screaming is from special interests who are mad they don’t get their handout, like when owners rail about cities not paying for arenas for their sports teams.

It’s coming, and the industry is likely better for it. Clarity was a flawed bill, not addressing some of the basic issues that need to be focused on: separating custody from exchange, ensuring bankruptcy remoteness, a proper framework for KYC/AML controls, and more.

The grit is going to be in the hard stuff, honestly. Regulating exchanges is not complicated, and it’s going to be long-term better for the industry that they get a more restrictive bill from Democrats here. What is going to be much more difficult are the parts that are novel: self-custody, decentralized software, and the inability to use the current KYC/AML framework on the modern system, especially as that is rapidly being taken apart by AI anyways.

Democrats are not going to sit this one out, though. Expect something to come through. The question is precisely what, but it’s coming. 

I would also expect those who have been the loudest on the policy front, and those who have been seen to push rulemaking and the administration the hardest, and those who fought some of the marginal Democrats the most to be targets: Coinbase and Kalshi, in particular.

If the moderates and younger Democrats are in control, I actually expect it is a net positive. If Elizabeth Warren dominates, it actually harms not just crypto, but likely the long-term competitiveness of the US banking system.

Small stakes, right?

This sits in a somewhat different space than core crypto, and the answer is that the SEC is making rules here and not much is going to change. Atkins still runs the SEC. There’s no real way to change the balance of power there for a while; the CFTC might be in a different place given the need to staff them, and that Dems can likely push things through if they want to lean on that.

The most stable part of the crypto space will be stablecoins and tokenization of real assets, as a result. The former because Congress has already spoken and passed the Genius act, and I don’t really see them spending too much time undoing that. There may be additional crypto regulation, but they are not going to retroactively illegalize stablecoins, especially not with so many left-wing interests also in favor of them now. 

On the other hand, tokenization legislation would help entrench that space in a similar way, and with the players in that world being traditional financial companies and the most responsible of crypto companies (e.g. Superstate, Securitize and not, say, Tether), that space is likely going to move forward.

In a strange way, this result making things more bipartisan is probably better for the long run, though it will crush the dreams of the most maverick crypto companies.

Also: keep an eye on Hyperliquid. Just saying.

I’m on the board of a Democratic non-profit (Open Frontier) that has been pro-tech on the Democratic side for a while. I’m also someone who went on 60 Minutes, when most in crypto were too scared to speak up, to help call out World Liberty for their apparent corruption.

I caught a lot of flak for that. Let me tell you right now, though: if you were in crypto (or tech) and went hard right, you are likely to be on the receiving end of some pain. And for those in the middle, you would be wise to vastly improve your policy outreach and efforts with the moderate left. 

The good news is that many of the newly elected Democrats are going to be willing to listen to those who were not firebreathing Trump supporters (sorry, Gemini). The bad news is that you actually have to get up and do something, because the neutral assumption is that you were with the administration if you are in this space.

If you don’t know what to do, and your policy people did not spend the last two years driving home the importance of building bridges on the left, not just the right, you should do two things:

One, fire your policy people, they just led you into a trap.

Two, reach out.

What does this mean across the globe? One, I would expect that the United States becomes more conservative on financial regulation again, giving a real opportunity for locations in Asia in particular to drive financial transformation and attract significant cutting edge business.

We aren’t likely to go back to the Elizabeth Warren-led crusade against all things crypto, but we also are not going to maintain the “crime is legal” level of permissiveness of the Trump administration. Instead, the road will be a middle ground, and middle grounds can be slow.

Somewhere that is willing to move intelligently, a Hong Kong or a Singapore, has a generational opportunity, should they choose to seize it.

Two, AI is going to get a lot more complicated. The recent ouster of Jensen, the Democrats starting up investigations again, and the overall drive of the Democratic party on this precise vector means that US AI could be facing more restrictions both internally and externally. 

Who wins here? Probably the open-weight labs serving inference to the rest of the world. Who knew DeepSeek was going to be a beneficiary?

Three, the war with Iran is likely over. It’s kind of been over, then on again, then over, then on again, then over, then on again… you get the point. But now it is likely to be decisively over. As Peter Zeihan predicted, the US is tired of being the global policeman. This episode is not likely to increase that appetite.

This was the biggest electoral earthquake in a long time, but remember what I said at the start: voters remain angry, and the primary drive is going to be affordability and jobs. 

A lot of bills from the past are starting to come due. Whether this is remembered as the start of a durable Democratic majority or just a signpost on the path to much greater instability is unclear, and likely depends on how well Dems now navigate those challenges. This was a purple tornado driven by affordability, not a blue tsunami driven by the US re-embracing woke values.

Inside the US, as a result, we expect things to get a lot more complicated in terms of doing business, but outside the US, we expect the chess pieces to move, creating major opportunities for innovation.