Crypto ETFs shed $500M in a day as post-midterm rally unravels

The post-midterm sugar rush wore off fast. U.S. spot crypto exchange-traded funds bled more than half a billion dollars in net outflows on Thursday, with Fidelity's FBTC leading the damage at $199.9 million, according to data compiled by The Block. BlackRock's IBIT followed with $105 million in redemptions and Grayscale's GBTC shed $49.9 million, while Franklin Templeton's EZBC, VanEck's HODL and Ark Invest's ARKB also slipped into the red. Every other bitcoin fund sat flat at zero.

Ethereum products took their own beating, paced by heavy redemptions from BlackRock's ETHA and ETHB flagships, with Fidelity's FETH and Grayscale's ETHE also leaking cash. Elsewhere, U.S. Solana ETFs lost a combined $1.2 million, Zcash ETFs gave back $11 million and Hyperliquid ETFs dropped $3 million, per SoSoValue data. XRP funds were the lone holdout, posting zero flows. Across the whole week, major U.S. crypto ETFs have now surrendered more than $1.1 billion in net outflows.

The tape explains the exit. Bitcoin fell 5.6% Thursday, wiping out a 4% pop from Wednesday that had followed Tuesday's midterm elections. Ether dropped 7.8%, and the GMCI 30 index, tracking the top 30 cryptocurrencies, slid 6.4%. It wasn't a crypto-only problem: the Nasdaq Composite sank 5.5% and the S&P 500 lost 4.4% as investors digested the Democrats' sweep of both chambers and what it could mean for restrictions on AI infrastructure spending.

Capital.com senior market analyst Kyle Rodda said the Democratic sweep piled onto existing worries about the AI investment boom, with investors already second-guessing tech valuations and the pace of infrastructure spending. He noted the political and regulatory risks landed while the AI trade was already on shaky ground, pointing to soft earnings and signs of slowing AI spending.

IG chief technical analyst Axel Rudolph told The Block that bitcoin got dragged into the AI rout as investors rushed to unwind risk across tech and crypto alike. He pointed to bitcoin's correlation with tech stocks, which left it exposed to the selloff, and noted more than $1 billion in leveraged crypto positions were liquidated in 24 hours as the decline rolled on.

Next up: Friday's U.S. jobs report. Economists expect roughly 60,000 to 65,000 new jobs, according to Capital.com senior market analyst Daniela Hathorn, who warned a hotter-than-expected print — especially one with stronger wage growth — could push Treasury yields and the dollar higher and make life harder for risk assets. Not everyone's bearish, though. André Dragosch, head of research for Europe at Bitwise, expects bitcoin to outperform U.S. equities as the AI trade unwinds, arguing the asset now reacts more to the dollar and monetary policy expectations than to economic growth and could decouple from stocks if financial conditions loosen.