EU parliamentary election results trigger market volatility

The cryptocurrency market is facing high levels of volatility stemming from recent general economic and political events. The results of the recent EU parliamentary elections have significantly affected investor sentiment, adding a layer of uncertainty to an already complex market landscape.

The changing political situation in Europe, coupled with conflicting economic indicators from major economies, has investors seeking clear guidance on the future regulation and market stability of digital assets. The results of the EU elections showed significant gains for far-right parties, especially in Germany, France and Austria, which has implications for the political dynamics of the cryptocurrency market. In France, Marine Le Pen's National Rally defeated President Emmanuel Macron's Ennahda party, forcing Macron to call early legislative elections.

Source: Politico French President Emmanuel Macron (left) and Marine Le Pen of the National Alliance (right)

The rise of the far right and its impact on cryptocurrency markets

The rise of the far right reflects anti-establishment sentiment in Europe’s cryptocurrency markets. Although mainstream parties still control the 705-member European Parliament, they are under significant pressure in the face of challenges from the far right. Jag Kooner, Bitfinex’s head of derivatives, recently said far-right leanings could lead to tighter controls on cryptocurrencies, a view consistent with widespread concerns that the regulatory environment could become more restrictive under right-leaning governance.

On the other hand, a more crypto-friendly stance from mainstream or left-wing parties could accelerate the adoption of supportive regulation, such as the Markets in Crypto-Assets Act (MiCA) framework. Additionally, the election saw the re-election of a number of key figures who played an important role in the development of European cryptocurrency policy, including MiCA legislative rapporteur Stefan Berger and former Economic and Monetary Affairs Committee (ECON) chairperson Irene Tingali.

The impact of economic indicators

In addition to political developments, recent economic indicators have further complicated the outlook for the cryptocurrency market. Last week, the European Central Bank (ECB) announced a 25 basis point interest rate cut, initially sparking investor optimism. The move is seen as a potential catalyst for economic growth and a support measure for risk assets including cryptocurrencies. However, market sentiment quickly changed on Friday as the U.S. released stronger-than-expected employment data, dampening investor expectations that the Federal Reserve would adopt a similar rate-cutting strategy.

The contrast between this European rate cut and the potential hawkishness of the Federal Reserve has brought additional uncertainty to the market and affected the confidence of cryptocurrency investors. Despite this, market experts remain optimistic about the future of the cryptocurrency market. The U.S. spot Bitcoin ETF has recorded significant inflows in recent days, indicating increased institutional interest. Cryptocurrency analyst Ali Martinez noted in a recent X post that short-term holders of Bitcoin are witnessing 3.35% profits, suggesting there is "minimal" risk of further Bitcoin sell-off.

Photo credit: Ali Martinez

The long-term impact of the European Parliament

The parliamentary elections resulted in a shift of the political spectrum in parliament to the right, although not as extreme as expected, but most pronounced in Austria and France. In Austria, the Freedom Party is expected to win 27% of seats, more than any other party. In France, the National Rally has almost twice as many seats as Macron’s centre-right bloc. The largest group in the European Parliament remains the European People's Party, with a projected 186 seats, up from 176 last term.

Mark Foster, head of EU policy at the Crypto Council for Innovation, said: “This slight shift to the right, combined with the strengthening of the European People’s Party and the weakening of the Green Party, may lead to a greater focus on competitiveness and growth over the next five years, which may lead to A policy framework that is more conducive to innovation.”

However, it is worth noting that while cryptocurrencies are not a major issue in the EU elections, their future depends on the commissioners who can propose legislation. New members will be selected after the election.