Dalio's Major Warning: U.S. Midterm Elections Could Flip, Trump’s Regulatory Policies May Change

Ray Dalio states that in the 2026 midterm elections, the Democratic Party may retake the House of Representatives (Polymarket predicted probability 78%), overturning Trump’s crypto policies. The Republican Party currently holds only a 5-seat majority, with housing affordability issues becoming a key factor. The CLARITY bill may be delayed until 2027.

Dalio’s Core Warning: Inflation and Housing Crisis

At the start of the new year, Dalio issued a major warning, pointing out that the biggest challenge facing Trump’s administration is not diplomacy or military issues, but the domestic economy. He said, “Housing affordability is likely to become the most important political issue next year, which could lead to the Republicans losing control of the House, causing chaos in 2027, and triggering a very interesting election in 2028.”

This judgment is based on historical patterns of U.S. elections. Dalio added, “Due to the functioning of democratic systems, President Trump has two years of unhindered governing authority, but this authority could be significantly weakened in the 2026 midterm elections and reversed in the 2028 presidential election. Now, it’s rare for a party to hold power for a long period.” The billionaire hedge fund manager said that the balance of power tends to shift every two years because parties often overpromise and fail to deliver.

Dalio has previously compared Trump to President Herbert Hoover. Hoover took office in 1929, just months before the Great Depression. This historical analogy suggests Dalio believes Trump may face an economic crisis, and economic performance will directly influence the outcome of the 2026 U.S. elections. Housing affordability is one of the most pressing economic issues for Americans today, with soaring home prices and rents making it difficult for young generations to buy homes, and increasing pressure on the middle class.

If the Trump administration cannot effectively address the housing problem within two years, voter disappointment could erupt in the midterms. Historical data shows that the ruling party usually loses seats in midterm elections, which is normal in U.S. politics. The Democrats only need to flip 3 seats to regain control of the House, and the housing crisis could be the final straw that topples the Republican Party.

Three Key Variables in the 2026 U.S. Election

(Source: Polymarket)

Probability of Democrats retaking the House: 78% (Polymarket traders’ forecast)

Current Republican seat advantage: Only 5 seats, very fragile

Key issue ranking: Housing affordability > Inflation > Immigration policy

Currently, the Republicans hold a narrow 5-seat majority in the House. This fragile majority means that any policy mistake or voter dissatisfaction could lead to a power shift. According to Polymarket traders, the probability of Democrats winning control of the House in November is about 78%. This figure is much higher than traditional polls suggest, indicating that “smart money” is betting that Trump’s honeymoon period will end within two years.

Dalio’s forecast aligns closely with the market consensus on Polymarket. When predictions from the market and top investors overlap, the reliability of this signal is usually greatly enhanced. Polymarket traders bet real money, and their collective wisdom is often more accurate than individual experts or polling agencies. A 78% probability implies that on Polymarket, the odds of betting on a Democratic victory are about 1.28:1, indicating a relatively high confidence level.

The crypto industry is one of the biggest beneficiaries of Trump’s administration’s digital tech and AI-focused policy agenda. However, a shift in the balance of power could occur before key legislation, including the CLARITY market structure bill, is signed into law, potentially overturning the pro-crypto regulatory changes during Trump’s era. Joe Doll, General Counsel of Magic Eden, told Cointelegraph in 2024 that President Trump, his administration, and crypto-supportive legislators have only two years to pass crypto regulations.

“The majority in the House is very slim and likely to flip, because this almost always happens. So, within two years, a divided government could emerge, leading to many deadlocks,” Doll said. Such a divided government would make it difficult for any new legislation to pass, as the House and Senate might be controlled by different parties, vetoing each other’s proposals.

The Two-Year Window for the CLARITY Bill

According to investment bank TD Cowen, because Democratic lawmakers expect a power shift in the 2026 U.S. elections and plan to delay voting until after the election, the CLARITY market structure bill might be postponed until 2027. This would be disastrous for the crypto industry, as it means the sector will continue operating under regulatory uncertainty, making it difficult to attract large institutional funds and traditional companies.

The CLARITY bill is the first comprehensive legislation on crypto market structure in the U.S., aiming to clarify the regulatory authority divisions between the SEC and CFTC, define which tokens are securities and which are commodities, and establish clear compliance standards for exchanges and custodians. If the bill cannot pass before the 2026 midterm elections, and Democrats retake the House, it may be overturned or significantly amended, causing the industry to lose the hard-won regulatory progress made over the past two years.

For investors, Dalio and Polymarket’s forecasts provide a clear timeframe. If Trump’s pro-crypto policies have only a two-year window, 2026 could be the turning point for the crypto bull market. Historically, policy uncertainty often leads to capital outflows and increased market volatility. When investors realize that a friendly regulatory environment might disappear after two years, they may take profits early, leading to a sell-off in the second half of 2026.

Conversely, if the Republicans manage to hold the House in the 2026 elections (though only a 22% chance), Trump would have a full four-year mandate, and the crypto industry’s golden period could extend to 2028. In this scenario, the CLARITY bill would pass smoothly, more banks and traditional financial institutions would enter the space, and Bitcoin could challenge higher valuation levels.

However, based on Dalio’s historically accurate predictions and the market consensus on Polymarket, investors should prepare for a policy reversal in the second half of 2026. This suggests that the first half of 2026 might be the last window for crypto asset allocation, with the second half of 2026 to 2027 entering a period of turbulence caused by policy uncertainty.