Bitcoin Recovers From Midterm Sell-Off as DeFi Tokens Outperform

Bitcoin staged a recovery after briefly falling to approximately $75,600 as Democrats secured control of Congress in the U.S. midterm elections. Decentralized finance (DeFi) tokens led the broader cryptocurrency rebound, while digital assets associated with President Donald Trump underperformed.

Bitcoin (BTC) climbed approximately 1.3% to $78,300 from midnight UTC, recovering from an early Wednesday decline that took it close to $75,600 around 03:00 UTC. Other major cryptocurrencies also advanced, with Ethereum (ETH) gaining 2% and the CoinDesk 80 Index rising 2.3%.

The CoinDesk DeFi Select Index (DFX) emerged as the strongest-performing sector, advancing roughly 5%. Injective (INJ) led the gains among its constituents with a 6.2% increase.

Bitcoin’s initial decline coincided with election results showing Democrats taking control of Congress, raising fresh questions about the future of cryptocurrency legislation in the United States. However, stock futures recovered from earlier losses on Wednesday, helping Bitcoin regain its footing.

Market participants are now turning their attention to Friday’s U.S. employment report for further clues about economic conditions and potential market direction.

Derivatives Market Positioning

Futures activity increases: Trading volume across the cryptocurrency futures market climbed 27% over 24 hours, while open interest (OI) increased by just 3%. This suggests much of the activity involved traders adjusting or closing existing positions rather than establishing substantial new exposure. Liquidations rose 22% to $469 million. Meanwhile, the taker volume ratio shifted slightly toward buyers, reaching 51.6% against 48.4% for sellers, reversing the previous session’s selling dominance of more than 51%.

Zcash attracts fresh positions: ZEC open interest surged 25%, exceeding its 14% price increase. The divergence suggests new capital entered the derivatives market. Zcash also recorded the strongest market-order buying activity among tracked cryptocurrencies, while positive funding rates indicated that bullish traders were paying bearish counterparties.

NEAR rally shows limited derivatives support: NEAR gained approximately 7%, but its open interest increased only 0.35%, suggesting limited growth in new futures positions. Despite the weak OI expansion, NEAR recorded the second-strongest market-order buying activity, and its positive funding rate reflected a bullish derivatives bias.

Ethereum gains stronger open-interest support: Bitcoin’s open interest increased 1.6% alongside a 2.1% price advance. Ethereum performed better in this regard, with open interest climbing 4.2% against a 2.7% price gain, indicating stronger fresh positioning. Trading volumes for both assets increased approximately 37% to 40%, while positive funding rates showed that long-position holders were paying shorts.

Funding rates remain mostly positive: Most major cryptocurrencies recorded slightly positive funding rates, indicating that long traders continued paying short traders to maintain their positions. Monero (XMR) and Bitcoin Cash (BCH) were notable exceptions, with negative funding rates suggesting stronger bearish positioning.

Mixed buying and selling pressure: Open-interest-adjusted cumulative volume delta (CVD), which measures market-order buying and selling activity, showed mixed signals across the market. Chainlink (LINK) recorded the weakest reading. Most cryptocurrencies experienced heavy market-order selling during the initial downturn, although much of that pressure subsequently reversed.

Bitcoin options volatility cools: Bitcoin’s one-week implied volatility declined from approximately 41% to 34% after spiking during the early-morning sell-off. This suggests the additional uncertainty priced into short-term options ahead of the election has largely faded. Options skew, which measures the additional premium investors pay for downside protection through puts compared with calls, briefly climbed to approximately 19% during the decline before returning close to its starting level.

Call options dominate Bitcoin trading: Four of Bitcoin’s six most actively traded options contracts were calls, led by the December 25 $88,000 call and November 7 $78,000 call. Ethereum options showed the opposite trend, with four of its six most active contracts being puts.

DeFi Tokens Lead Cryptocurrency Market Gains

Venice (VVV), the native token of AI platform Venice, topped the CoinDesk 100 gainers, advancing approximately 7% since midnight UTC and extending its 24-hour gains to around 17%.

Grass (GRASS), Bonk (BONK), NEAR and Morpho (MORPHO) each recorded gains of approximately 6%. Zcash (ZEC) also advanced 5%, bringing its 24-hour increase to roughly 12%.

Decentralized finance assets accounted for much of the market’s strength, with all seven constituents of the DeFi Select Index trading higher. Injective (INJ) and Ethena (ENA) were among the leading performers.

Memecoins also posted notable advances. Pepe (PEPE) gained approximately 5%, while Bonk climbed around 6%, outperforming the CoinDesk Memecoin Index, which increased 1.1%.

However, cryptocurrencies linked to Trump moved in the opposite direction following the Democratic election victories. The official Trump token (TRUMP) declined 7.1%, while World Liberty Financial (WLFI) dropped 5%. Trump Media shares also fell approximately 6.5% in premarket trading.

Meanwhile, the CoinMarketCap Fear and Greed Index stood at 37, indicating continued fear among cryptocurrency investors. Its Altcoin Season Index registered 51, reflecting relatively balanced performance between Bitcoin and alternative cryptocurrencies.

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