How will the Democratic Party regaining control of Congress and the cooling of AI trading affect the cryptocurrency market?

Author: Zhou, ChainCatcher

On November 5, Eastern Time, U.S. stocks experienced the largest single-day sell-off since April 2025.

After the Democratic Party swept both houses of Congress in the midterm elections, the market worried that the construction of AI data centers would be slowed down, leading chip stocks to lead the decline. The Nasdaq Composite Index fell 5.52%, closing into a technical correction zone.

On Friday, the Asia-Pacific stock markets opened lower across the board, with South Korea's KOSPI triggering a circuit breaker during the session.

The cryptocurrency market was not immune either. Bitcoin briefly fell below $76,000, and Ethereum dipped below $2,250, completely reversing the gains made after the midterm elections.

As of the time of writing, according to CoinGlass data, over $1.2 billion was liquidated across the network in the past 24 hours, with nearly 90% of that being long positions.

Wall Street Turns Bearish, AI Sell-off Spreads to Asia-Pacific

Just a day before the crash, Wall Street was generally bullish. After the election results were announced, the S&P 500 index rose nearly 2% on Wednesday, and the Dow Jones Industrial Average increased by over 3%.

Institutions such as JPMorgan, Nomura, HSBC, and Citadel Securities released bullish reports, citing that institutional positions had been significantly reduced before the election, and with uncertainty dissipating, there was ample room for capital replenishment.

Data from Citadel Securities also showed that retail investors had net bought U.S. stocks for 22 consecutive trading days, totaling nearly $33 billion.

The optimism lasted only a day. After the market opened on Thursday, it began to reassess the impact of the Democratic victory on the AI industry. The Democrats not only secured both houses but also won gubernatorial elections in key data center states like Texas and Georgia. The newly elected Texas Governor Gina Hinojosa had advocated for an immediate halt to new data center constructions.

UBS estimated that about 30% of the planned new data center capacity in the U.S. for 2028 could be affected by potential construction halts.

The sell-off quickly spread from chip stocks. The Philadelphia Semiconductor Index fell 12.25%, marking the second-largest single-day decline on record for the index, according to Reuters. Nvidia dropped over 9%, while Micron and AMD both fell about 17%.

By the close, the Dow Jones fell 3.44%, the S&P 500 index dropped 4.36%, and the Nasdaq 100 index declined 6.36%, with the entire U.S. stock market losing about $3 trillion in market value in a single day.

Nomura's cross-asset strategist Charlie McElligott described the market as abandoning this year's leading stocks, with hedge funds eager to lock in profits before the year-end. Retail investors also changed their habit of buying on dips, with Vanda Research data showing that the scale of net selling by retail investors on that day was the largest since March 2020. The firm's global macro strategist Viraj Patel considered this a complete surrender by retail investors.

On Friday, the Asia-Pacific stock markets continued to decline. The South Korean exchange triggered a circuit breaker at 9:03 AM local time, halting trading for 20 minutes, with the KOSPI dropping as much as 8.8%, falling below 5,000 points for the first time in nine months. Samsung Electronics and SK Hynix both briefly fell over 10%. The Nikkei 225 index saw a decline of over 6% during the session, and Taiwan's stock market also dropped over 8% at one point.

Bitcoin Falls Below $76,000, Leveraged Funds Suffer Double Whammy

The trends in the cryptocurrency market closely mirrored those of U.S. stocks. After the election results were clarified on Wednesday, Bitcoin briefly surged above $80,000, leading to a concentrated liquidation of short positions.

On Thursday, the situation completely reversed. According to CoinGecko data, when the Nasdaq fell nearly 4% during the session, Bitcoin dropped from $78,767 to $75,986 within an hour. Subsequently, Bitcoin briefly fell below $76,000, hitting a new low since mid-September and dropping below the 50-week moving average. Ethereum also fell in tandem, dipping below $2,250 at one point.

For the entire day on Thursday, Bitcoin fell about 6%, comparable to the declines of 5.52% for the Nasdaq Composite Index and 6.36% for the Nasdaq 100 Index, and significantly less than the 12.25% drop in the Philadelphia Semiconductor Index.

CryptoQuant analyst Darkfost previously pointed out that, calculated over a 90-day rolling window, the correlation between Bitcoin and the S&P 500 has exceeded historical averages.

In terms of spot ETFs, SoSoValue data showed that U.S. Bitcoin spot ETFs experienced a net outflow of $430 million on November 5, with none of the 12 ETFs seeing net inflows. The total assets under management dropped from $102.26 billion the previous day to $96.65 billion, falling below $100 billion.

In fact, this round of capital withdrawal began before the election. In the five trading days since October 30, Bitcoin spot ETFs recorded net inflows only on November 4, with a total net outflow of about $1.51 billion. Ethereum spot ETFs fared even worse, with a net outflow of $99.97 million on November 5, recording net inflows on only 3 of the 16 trading days since October 15.

In the derivatives market, in contrast to Wednesday, this time it was the bulls who were liquidated. CoinGlass data showed that over the past 24 hours, $1.251 billion was liquidated across the network, with $1.108 billion of that being long positions, accounting for 88.6%, and a total of 239,896 people were liquidated.

Moreover, the sell-off in U.S. stocks also directly transmitted to the cryptocurrency derivatives market through perpetual contracts. CoinGlass's liquidation heatmap showed that the liquidation amounts for contracts related to SNDK and SOXL reached $58.32 million and $56.71 million, respectively, both exceeding SOL's $43.25 million.

Market sentiment subsequently cooled, with CoinGlass's Fear and Greed Index dropping to 27 on Friday, down 24 points from the previous day, indicating a state of fear, while the average over the past 30 days was still at 50.

Cryptocurrency Concept Stocks Generally Plummet, Mining Companies Hit Hard

The drop in cryptocurrency prices also dragged down cryptocurrency concept stocks listed in the U.S. Among trading platforms and compliance companies, Coinbase fell 9.69%, Robinhood dropped 10.32%, and Circle declined 8.72%.

The declines for digital asset reserve companies generally exceeded the drop in their held assets, with Ethereum reserve company Bitmine and SharpLink falling 12.56% and 10.21%, respectively, while Bitcoin reserve companies Strategy and Strive dropped 9.29% and 10.17%, with declines greater than those of Ethereum and Bitcoin during the same period.

The deepest declines were seen in Bitcoin mining companies that have transformed into AI data centers over the past two years.

These mining companies, holding power resources and facilities, have been converting their mining setups into AI computing centers, and their valuations have surged alongside the AI infrastructure boom. SemiAnalysis estimated that Texas accounts for about 30% of the planned operational data center capacity in the U.S. for 2028, significantly higher than other states.

The decline of mining companies began on Wednesday, with Core Scientific dropping 11.6%, IREN falling 12.5%, and Cipher Digital plunging 21%.

Bernstein subsequently downgraded the target prices of seven mining companies, citing tightened financing and uncertain prospects in Texas, with IREN's target price reduced from $100 to $55, and TeraWulf's from $36 to $20. The firm noted that among the companies it covers, IREN, Riot, and Cipher have the largest exposure to Texas.

On Thursday, as U.S. stocks plummeted, the declines for mining companies further widened. Bitdeer fell 18.68%, IREN dropped 16.95%, CleanSpark declined 16.47%, Cipher fell 14.62%, MARA dropped 14.48%, and TeraWulf fell 13.85%.

Market Awaits Anthropic IPO and Nvidia Earnings Report

In the next two weeks, tech stocks will face two key events.

First is the IPO process of Anthropic. Just a day before the crash, HSBC's chief multi-asset strategist Max Kettner viewed the Anthropic IPO as a true clearing event for tech stocks, believing that if completed smoothly, it could lead to a comprehensive bullish sentiment in tech stocks. Now, this event itself has become uncertain.

According to Reuters, four insiders revealed that potential investors are skeptical about whether Anthropic can start its roadshow as planned in the week of November 9 and go public within November. If AI-related assets continue to face pressure, Anthropic may delay its IPO. Investors are also waiting for the company's revenue data for October, which remains blank in the updated S-1 filing.

Valuation expectations are also being revised downwards. The Wall Street Journal reported that three major investors planning to participate in the subscription believe that after the sell-off, it will be difficult for the company to achieve the previously expected valuation of $15 trillion, with one investor suggesting it may be closer to $10 trillion. Just over a month ago, the market was discussing a valuation around $20 trillion.

The other key event is Nvidia's third-quarter earnings report, which will be released after the U.S. stock market closes on November 17. Market expectations for this report are high. Nvidia's guidance in August indicated that revenue for the quarter would be around $108 billion, a year-on-year increase of about 106%, with analysts' consensus expectations around $109 billion. This guidance did not include revenue from data center computing business in the Chinese market.

More attention is being paid to management's statements regarding demand prospects. Nvidia has already indicated in its quarterly risk disclosures that power shortages, financing constraints, and regulatory obstacles to data center construction could delay customer deployment schedules and hinder revenue growth. After the Democratic victory, these risks have become the focus of investors' reassessments.

As the most core company in the AI infrastructure chain, Nvidia's statements will directly influence the market's judgment on the pace of data center construction, and mining companies transitioning to AI are also part of this chain.

From U.S. stocks to Asia-Pacific, and then to the cryptocurrency market, the main theme of this round of declines has always been AI trading. JPMorgan strategist Nikolaos Panigirtzoglou previously indicated that hedge funds, after experiencing the sell-off in October, may need several weeks of market stabilization before re-establishing AI exposure. Hennion & Walsh Chief Investment Officer Kevin Mahn also believes that the market will experience more volatility ahead.

Anthropic's IPO roadshow and NVIDIA's financial report will be revealed in the next two weeks. The results will not only affect tech stocks but also determine whether the current round of declines spreading from U.S. stocks to Asia-Pacific chip stocks and crypto assets can find a bottom.

Crypto Critic Warren May Lead Senate Banking Committee, Crypto Legislation Stalls Again

In terms of policy regulation, the Democratic victory may have a significant impact on the crypto industry.

Although the crypto-friendly Chairman of the House Financial Services Committee, French Hill, won reelection, he will hand over the chairmanship in January as the Democrats take control of the House. According to Reuters, senior Democratic member Maxine Waters is the leading candidate to succeed him.

In the Senate, Elizabeth Warren, who has long held a critical stance toward the crypto industry, is expected to head the Banking Committee. She previously co-signed a letter to the Department of Justice and the Department of Treasury, requesting clarification on the investigation into the Trump family's crypto business.

Democrats have also insisted on including ethical provisions to limit conflicts of interest for government officials in the CLARITY Act. According to Bloomberg, this disagreement has stalled the bill. In September of this year, the CLARITY Act failed to advance in a procedural vote in the Senate by a margin of 49 to 50.

Warren's stance on new crypto-related products is equally firm. On November 3, the CFTC announced it would allow individual stock perpetual contracts to be listed for trading on its registered exchanges, to which Warren immediately issued a statement, arguing that such high-risk products are prone to insider trading and could cause severe market volatility.

Several institutions believe that crypto legislation will be further delayed. Stifel's Chief Washington Policy Strategist Brian Gardner believes that the CLARITY Act has no chance of advancing in the remaining term of this Congress, and the likelihood of bipartisan compromise in the next Congress is also low. He also expects Warren to investigate crypto companies. Compass Point analyst Ed Groshans pointed out that after Warren leads the Banking Committee, the proliferation of crypto assets will largely depend on the regulatory actions of the SEC and CFTC.