Just one day after the U.S. midterm election results were announced, markets abruptly shifted from a brief rebound into a sharp selloff.
As technology stocks, particularly the artificial intelligence sector, collapsed, panic quickly spread to the cryptocurrency market, causing major assets like Bitcoin to plunge sharply, with market liquidity taking a severe hit in a very short period.
In the early hours of November 6, U.S. equities suffered an epic selloff, with total market capitalization evaporating by over $3 trillion in a single day. The Nasdaq Composite fell 5.5%, the S&P 500 dropped 4.4%, and the Dow Jones Industrial Average plunged 1,833 points, a decline of 3.4%. Chip stocks bore the brunt of the damage, with NVIDIA Corp (NASDAQ: NVDA) shares falling 9.3%, Advanced Micro Devices Inc (NASDAQ: AMD) shares plummeting 17.3%, and the Philadelphia Semiconductor Index dropping about 12%. Data from the Chicago Board Options Exchange showed the Volatility Index (VIX) closed at 28.18, surging 69.66% from 16.61 the previous day. This sharp amplification in the volatility gauge reflects the market's heightened sensitivity to short-term uncertainty.
Notably, according to Business Insider and Bloomberg, Walleye Capital, which manages about $17 billion, lost 5.9% in October, its worst monthly performance since March 2020, and has dissolved its equity long-short team while planning to return some capital to investors. Systematic hedge fund Engineers Gate also dismantled most of its "Synthesis" equity team, losing 5.5% in October through the 23rd. Losses and position reductions at multiple funds further accelerated the stock market's downward momentum.
The cryptocurrency market quickly followed with a correlated decline, as BTC, ETH, and SOL prices retreated across the board. Bitcoin briefly broke above $80,000 but fell back to around $76,000 on November 5 alongside the tech stock pullback, nearly erasing all its gains. As of 11 a.m. on November 6, Bitcoin was trading near $76,100, down about 5.4% over 24 hours; Ethereum was at $2,241, down about 7.6%. Woofun AI on-chain data showed that total forced liquidations in the cryptocurrency derivatives market over the past 24 hours reached $1.239 billion, with long positions liquidated to the tune of $1.099 billion and short positions at $139 million.
At 10 a.m. on November 6, Bitcoin's price fell further to $76,056, touching an intraday low of $75,230, with the 24-hour decline widening to 5.7%. Ethereum hit an intraday low of $2,209, down 7.8% over 24 hours; Solana dropped to around $90, down 6.5% over 24 hours. The selling wave rapidly spread to global markets, and Asian stock markets were not spared. South Korea's KOSPI fell as much as 8.8% intraday, triggering a circuit breaker that halted trading for 20 minutes; Japan's Nikkei 225 index dropped as much as 6.7% during the session. South Korean chipmakers Samsung Electronics Co Ltd (KRX: 005930) and SK Hynix Inc (NASDAQ: SKHY) both saw sharp declines, with Samsung Electronics falling over 10% and SK Hynix dropping more than 12%.
The underlying reason is that the market has begun questioning whether the hundreds of billions of dollars tech companies are investing in AI infrastructure can generate sufficient revenue and profit growth. Data center construction relies heavily on external financing, and the higher interest rate environment significantly increases construction and debt servicing costs. Recent chip company earnings have failed to ease investor concerns, with Qualcomm Inc (NASDAQ: QCOM) reporting mobile chip sales below expectations, further dampening market sentiment in the semiconductor industry.
Political and regulatory risks have become another key variable exacerbating market panic. After the U.S. midterm elections concluded on November 3, Democrats won control of both the Senate and the House of Representatives. Although the initial election results sparked a market rally, investors quickly reassessed the policy outlook. With Democratic control, data center projects may face stricter scrutiny regarding grid capacity, water usage, energy prices, and environmental impact, and local government approval processes could slow down. More concerning, Arizona Democratic Representative Yassamin Ansari called on the X platform for pausing advanced AI development, regulating the "out-of-control" industry, and banning artificial superintelligence to be listed as top priorities on the first day of the Democratic agenda. The "Banning Artificial Superintelligence Act" she co-signed is not a recent proposal: the House version H.R.10538 was introduced by Representative Greg Casar on September 24, and the Senate version S.5493 was introduced by Senator Bernie Sanders on September 23. Both bills currently remain in the Oversight and Government Reform Committee and the Commerce, Science, and Transportation Committee, respectively, and have not yet become law. The bill proposes establishing a federal-level AI regulatory authority, pausing the training, modification, and deployment of advanced models that meet a computing power threshold until the agency is fully staffed and safety rules are established; violating companies could face forced dissolution, and individuals could face up to 20 years in federal prison. Additionally, the bill lists a "global ban on superintelligence" as a U.S. foreign policy goal, aiming to use export controls to prevent super AI development anywhere in the world. Notably, the strictness of these proposals far exceeds market expectations for future AI regulation.
Industry expert views and market performance mutually reinforce each other, highlighting structural risks. Joshua Lim, Global Head of Markets at FalconX, pointed out that investors are beginning to consider the impact of a slowdown in data center construction, and the previous rally largely stemmed from an eagerness to cover short positions and go long. Carlos Guzman, Vice President of Research at digital asset trading firm GSR, believes the market has long questioned the returns on massive AI infrastructure investments, the election results added uncertainty, and chip company earnings brought additional downward pressure. This pressure has spread to Bitcoin mining companies, many of which leverage their power and facility advantages to expand into AI computing services, with their stock prices affected by both Bitcoin prices and data center revenue expectations. Media reports indicate that related mining stocks fell between 15% and 20%. Publicly listed crypto companies also declined sharply. As of the U.S. stock market close on November 5, Coinbase Global Inc (NASDAQ: COIN) shares fell about 9.7% to $136.82; Circle Internet Group Inc (NYSE: CRCL) shares dropped about 8.7% to $69.48; and Strategy Inc (NASDAQ: MSTR), which holds a large Bitcoin reserve, fell about 9.3% to $129.30. These companies saw even larger declines during the trading session, reflecting a broad avoidance of crypto-related assets by capital.
The outlook depends on the effectiveness of key support levels and the guidance of macroeconomic data. Bitcoin's price fell to around $75,300 at one point, close to the short-term holder cost level that institutions monitor. Bitfinex estimated in a November 4 report that the average short-term holder cost is about $75,800. If the price falls below this level, recent buyers will face unrealized losses, and selling pressure on rebounds could limit upward momentum. Bitfinex expects Bitcoin to trade between $75,800 and $80,200 before the November 6 options expiry. If the daily closing price falls below the short-term holder cost and the proportion of supply in profit drops below 58%, the price could decline further to the $70,000 to $75,000 range. A 21Shares report presented two scenarios: in a bullish scenario, if the $76,000-$78,000 range finds buying support and ETF inflows resume, Bitcoin could rebound to $80,000-$82,000, with a target of $87,000; in a bearish scenario, if the dollar strengthens, credit tightens, and ETFs continue net selling, Bitcoin could test the $73,000 support level. Farside Investors data showed that U.S. spot Bitcoin ETFs saw net outflows of $399 million and $116 million on November 2 and 3, respectively, turned to a net inflow of $74.6 million on November 4, but by the morning of November 6, cumulative net outflows had reached $325 million. Jasper De Maere, Head of Research at Wintermute, believes that despite the poor performance of AI stocks, cryptocurrencies remain resilient, and he maintains an optimistic medium-term outlook. However, October nonfarm payroll data will be released at 21:30 on November 6, and the October Consumer Price Index will be published on November 10. If the data reinforces high interest rate expectations, tech stock valuations and crypto market risk appetite will continue to face pressure; conversely, weak data could present rebound opportunities. This is another major test for the market following the election, and the interplay between capital flows and macroeconomic data will determine short-term movements.
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