U.S. Midterm Elections and the Case for Risk-On Assets in 2025

The 2025 U.S. midterm elections have underscored a pivotal shift in financial market dynamics, with Trump-aligned policies and evolving liquidity conditions creating a unique confluence of risk and opportunity. As volatility waned in the post-election period, investors are now presented with strategic entry points in equities and crypto, where priced-in risks and macroeconomic tailwinds suggest a compelling case for tactical positioning.

Trump-Aligned Policies and Market Sentiment

The 2025 midterms amplified the influence of Trump-era policies, particularly in trade and digital assets. High tariffs on Chinese goods, while initially spooking markets, have reinforced a narrative of economic nationalism that favors domestic sectors like manufacturing and energy. Meanwhile, the administration's pro-crypto agenda-marked by the appointment of a crypto-friendly SEC chair and the passage of the GENIUS Act- catalyzed a 7% surge in Bitcoin in September 2025, outperforming traditional assets like gold and T-bills. This policy-driven optimism has positioned U.S. equities and digital assets as liquidity-driven outperformers, with the S&P 500 rising 1.5% in the same period.

However, the October 2025 market correction, triggered by Trump's 100% tariff threat and a government shutdown-induced data blackout, exposed fragilities in liquidity conditions. Yet, these pullbacks have created actionable opportunities. For instance, Bitcoin's post-crash resilience-evidenced by stable exchange balances and a VMI signal from QCP Capital- suggests that structural metrics remain robust despite thin liquidity.

Late-Cycle Dynamics and Liquidity-Driven Outperformance

QCP Capital's analysis frames the current market environment as a late-cycle phase, characterized by corrections in equities, gold, and crypto but not an imminent recession. This phase is defined by tightening liquidity and shifting policy expectations, yet it also highlights the potential for risk-on assets to rebound. For example, the S&P 500's historical performance in the final quarter of midterm years-averaging gains despite intra-year volatility-points to a favorable near-term outlook. Similarly, Bitcoin's safe-haven appeal during the October 2025 government shutdown demonstrated its growing role in diversified portfolios.

The approval of U.S. spot-bitcoin ETFs has further institutionalized crypto as a strategic asset, enabling near-instant settlement and enhancing corporate treasury liquidity. This structural shift, coupled with macroeconomic catalysts like China's stimulus and the Fed's dovish pivot, reinforces a risk-on bias. QCP analysts note that a weak rebound in Bitcoin is likely followed by a range-bound bottom formation, with a true trend reversal contingent on macro liquidity stabilization.

Strategic Entry Points and Tactical Positioning

With volatility de-escalating post-midterms, investors should focus on liquidity-driven entry points. QCP Capital advocates shifting from yield-generating investments to options-based strategies to capitalize on potential price swings in equities and crypto. For equities, AI-driven sectors and defensive plays in retail (due to potential tariff refunds) offer asymmetric upside. In crypto, leveraged positions during pullbacks-supported by QCP's VMI signal- could yield outsized returns as regulatory clarity and institutional adoption accelerate.

The December 2025 FOMC meeting represents a critical inflection point. Dovish signals on 2026 policy paths could catalyze a sustained recovery in Bitcoin, mirroring historical patterns where positive September performance has historically led to gains in the subsequent months. Meanwhile, a Republican sweep in 2026 may rally financial and energy stocks but reintroduce tariff-related uncertainty, while a Democratic sweep could trigger corrections via higher taxes.

Conclusion

The 2025 midterm elections have reshaped the risk-reward landscape for equities and crypto. Trump-aligned policies, coupled with late-cycle liquidity dynamics, have created a fertile ground for tactical positioning. As volatility normalizes and priced-in risks materialize, investors are advised to prioritize liquidity-driven strategies, leveraging pullbacks in both asset classes to secure long-term outperformance. With macroeconomic tailwinds and regulatory tailwinds aligning, the case for risk-on assets in 2025 remains compelling.