Blue Wave Batters Nasdaq, Kospi and Bitcoin as AI Regulation Fears Spark Selloff
Selling swept from U.S. technology stocks to South Korean chipmakers and Bitcoin. Concerns over AI data center regulation that surfaced after the U.S. midterm elections rattled risk assets across the board. Investors cut holdings to limit losses, while forced unwinding of leveraged bets added to the downward pressure.On Nov. 6, the Kospi fell below 5,000 shortly after the open. The Korea Exchange triggered a circuit breaker at about 9:03 a.m.Heavyweight semiconductor shares dragged the index lower. Samsung Electronics fell 10% early in the session to 181,400 won ($131.20), while SK Hynix dropped 12% to 1.116 million won ($807.81). The two stocks had already tumbled 7.57% and 9.46%, respectively, a day earlier. Large sell orders hit the market for a second straight session.AI-related shares were also hit by a rout on Wall Street overnight. On Nov. 5, the Nasdaq Composite closed down 5.52% at 24,315.00. The S&P 500 fell 4.36%, while the Dow Jones Industrial Average lost 3.44%. The Nasdaq is now down 11.9% from last month’s peak, putting it in technical correction territory.The Nasdaq 100, dominated by large technology stocks, sank about 6.4% for its biggest one-day drop since the Covid-19 shock in March 2020. The Philadelphia Semiconductor Index also plunged more than 12%. About $3 trillion in market value was wiped from S&P 500 companies in a single day.Crypto markets were not spared. On the same day, Bitcoin was trading around $76,200 on Binance's USDT market, down about 5.4% from a day earlier. It fell as low as $75,568 during the slide. The $80,000 level, which had been regained after the election, gave way again.As recently as a day earlier, markets had welcomed the fading of election uncertainty. U.S. stocks rebounded and Bitcoin turned higher after it became clear that Democrats would control both the Senate and the House.The mood shifted as investors grew concerned that victories by Democratic figures opposed to data center construction could slow the buildout of AI infrastructure. That added a regulatory overhang to existing questions about whether the industry can recoup massive AI spending.Bitcoin miners that had been expanding their data center businesses were also hit, shaking both technology shares and crypto-linked companies.Position cuts by institutional investors that had piled into AI stocks added to the pressure. Goldman Sachs wrote in a client note on Nov. 5 that large multi-strategy hedge funds were heavily exposed to megacap AI stocks and suffering significant losses. Nomura said leveraged exchange-traded funds may need to sell about $47 billion of equities by the close to rebalance their return targets.Forced liquidations in crypto markets triggered another wave of selling. More than $1 billion in derivatives positions was liquidated over the past 24 hours, according to CoinGlass data. Most of those were long bets on rising prices. The pattern repeated itself as risk-off selling in equities spilled into Bitcoin, and falling prices in turn triggered more forced liquidations.Carlos Guzman, vice president of research at GSR, said the midterm election result added a new burden at a time when investors were already questioning the profitability of AI spending. The rebound seen a day earlier on hopes of easing geopolitical tensions then reversed as appetite for risk assets faded.