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 to a decline in chip stocks. The Nasdaq Composite Index fell by 5.52%, closing into a technical correction zone.

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

The cryptocurrency market was not immune either. Bitcoin briefly fell below $76,000, and Ethereum dropped below $2,250, completely erasing 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 compressed before the elections, and there was ample room for capital replenishment after uncertainty dissipated.

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. by 2028 could be affected by potential construction pauses.

The sell-off quickly spread from chip stocks. The Philadelphia Semiconductor Index fell by 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 by about 17%.

At the close, the Dow Jones fell by 3.44%, the S&P 500 index dropped by 4.36%, and the Nasdaq 100 index decreased by 6.36%, with the total market capitalization of U.S. stocks evaporating by about $3 trillion in a single day.

Nomura 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 that day was the largest since March 2020. The firm's global macro strategist Viraj Patel considered this a complete capitulation 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. The KOSPI fell as much as 8.8% during the session, breaking below 5,000 points for the first time in nine months, with Samsung Electronics and SK Hynix both dropping over 10%. The Nikkei 225 index fell by more than 6% during the session, and Taiwan's stock market also saw a drop of over 8%.


### Bitcoin Falls Below $76,000, Leveraged Funds Suffer Double Blow

The cryptocurrency market's performance was almost in sync with U.S. stocks. After the election results were clarified on Wednesday, Bitcoin briefly surged above $80,000, leading to concentrated liquidations 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. Bitcoin then 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, briefly dropping below $2,250.

For the entire day on Thursday, Bitcoin fell by about 6%, which was comparable to the declines of 5.52% in the Nasdaq Composite Index and 6.36% in 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 elections. In the five trading days since October 30, Bitcoin spot ETFs only recorded net inflows on November 4, with a total net outflow of about $1.51 billion. The situation for Ethereum spot ETFs was even weaker, with a net outflow of $99.97 million on November 5, and only three days of net inflows in 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.

Additionally, 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 remained at 50.

### Cryptocurrency Concept Stocks Suffer Widespread Declines, 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-related companies, Coinbase fell by 9.69%, Robinhood by 10.32%, and Circle by 8.72%.

The declines for digital asset reserve companies generally exceeded the decline of their held assets, with Ethereum reserve company Bitmine and SharpLink falling by 12.56% and 10.21%, respectively, while Bitcoin reserve companies Strategy and Strive fell by 9.29% and 10.17%, respectively, 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 space, have been converting their mining facilities into AI computing centers, and their valuations have risen along with the AI infrastructure boom. SemiAnalysis estimates that Texas accounts for about 30% of the planned operational data center capacity in the U.S. by 2028, far exceeding other states.

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

Bernstein subsequently downgraded the target prices of seven mining companies, citing tightened financing and uncertain prospects in Texas, with IREN's target price lowered 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, the U.S. stock market plummeted further, and the declines for mining companies widened. Bitdeer fell by 18.68%, IREN by 16.95%, CleanSpark by 16.47%, Cipher by 14.62%, MARA by 14.48%, and TeraWulf by 13.85%.

### Market Awaits Anthropic IPO and Nvidia Earnings Report

In the next two weeks, tech stocks will face two critical milestones.

The 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 liquidation event for tech stocks, believing that if completed smoothly, it would allow for a comprehensive bullish stance on tech stocks. Now, this event itself has become uncertain.

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

Valuation expectations are also being lowered. 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 reach the previously expected valuation of $15 trillion, with one believing it may be closer to $10 trillion. Just over a month ago, the market was discussing a valuation around $20 trillion.

The other milestone is Nvidia's third-quarter earnings report, which will be released after the U.S. market closes on November 17. The market expectations for this report are not low. Nvidia's guidance in August indicated that revenue for this 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 the 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 may delay customer deployment schedules and hinder revenue growth. After the Democratic victory, these risks have become the focus of investor reassessment.

As the most core company in the AI infrastructure chain, Nvidia's statements will directly impact 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 their AI exposures. Hennion & Walsh Chief Investment Officer Kevin Mahn also believes that the market will experience more volatility in the future.

Anthropic's IPO roadshow and Nvidia's earnings report will be revealed in the next two weeks. The results will not only affect tech stocks but will also determine whether the current round of declines, which has spread 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 French Hill, the crypto-friendly chair of the House Financial Services Committee, won re-election, he will hand over the chair position 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 been critical of the crypto industry, is expected to head the Banking Committee. She has previously co-signed a letter to the Department of Justice and the Treasury Department, requesting clarification on the investigation into the Trump family's crypto business.

Democrats have also insisted on including ethical clauses 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 on its registered exchanges, to which Warren immediately responded with 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. Brian Gardner, Chief Washington Policy Strategist at Stifel, believes that the CLARITY Act has no chance of advancing during the remainder of this Congress, and the likelihood of bipartisan compromise in the next Congress is also very 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.