Crypto ETF Carnage; Stablecoin Contraction

Sweep-stakes

• On last Tuesday’s midterm election day, Kalshi, Polymarket US and Polymarket recorded $4.96 billion in combined volume.
  • They then saw another ~$4.9 billion the next day as the election results came in.
  • Kalshi accounted for the vast majority of the volume, with $4.15 billion on Tuesday, compared to its October weekday average of just $2.7 billion.
  • Meanwhile, Polymarket’s global platform saw just $240 million on election day, less than half of what it saw during the 2024 presidential election.
  • Speaking of Polymarket global, the drop in its volumes says more about where Americans trade now than about interest.
  • In 2024 they had to go offshore. In 2026, they can use Kalshi or Polymarket US.
• In terms of calling the actual midterm election results, prediction markets did their job.
  • Polymarket priced the House at 93% for Democrats and the Senate at 68% in late October, while its "Democrats Sweep" market traded at 73.5% before polls closed.
  • On the other hand, Kalshi says the favorite won in 479 races, an accuracy rate of ~98%.

More or Less Clarity?

• The price of Bitcoin fell 6% on Thursday, November 5th, a day after jumping 3.8% following the US midterm election results.
  • On the same day, the Nasdaq fell 5.5%, its worst day since April 2025.
  • Bitcoin saw no relative strength against equities on this particular day, though when zooming out to the full week, the case for Bitcoin starts to come up.
  • Bitcoin closed the week down 1.6%, compared to the Nasdaq’s -3.4% and the S&P500’s -2.7%.
• The catalyst behind these sharp selloffs in equities was most likely political.
  • It is worth noting that a significant contributor to the historic rise in tech indices over the past year or two has been the AI buildout and related stocks.
  • Stocks rallied on Wednesday as the election risk premium came off, before reversing back down as the market likely concluded that a Democratic Congress could make the AI buildout slower and more expensive.
  • This is because rising electricity prices have turned data centers into a voter issue, and some Democrats have called for restrictions or pauses on new projects.
• In terms of the “relative strength” Bitcoin has seen this week, a likely explanation is that Bitcoin has already had its bear market.
  • The price of BTC peaked in October 2025 and is currently down 40% from that peak, and 14% year-to-date (YTD).
  • On the other hand, the Nasdaq had set a record as recently as October 2026, almost exactly a year after Bitcoin’s top, while still being up ~5.8% YTD even after this week’s selloff.
  • So while equities are now pricing out the AI premium, crypto lost its speculative excess a year ago, which means Bitcoin simply had much less left to sell in comparison.
  • This does not mean Bitcoin, and crypto in general, is now immune to bearish headwinds either, as the midterm election results might also complicate the Clarity Act, since crypto legislation now needs bipartisan support in both chambers.

ETF Carnage

• With volatility in crypto and equity markets, spot ETFs have suffered from strong outflows in the past week.
  • BTC and ETH ETFs saw more than a billion in outflows combined with poor price performance. Altcoins, while also suffering from price drawdowns, saw more modest outflows as total AUM was relatively lower.
• Bitcoin saw the largest nominal flows, but outflows were concentrated in BlackRock’s IBIT ETF. Fidelity and Bitwise both saw inflows last week while the AUM leader shed $800 million. This dynamic suggests that FBTC and BITB holders have been adding to Bitcoin positions on this drawdown while traders are increasingly positioned in IBIT.
• Ethereum ETFs have suffered far worse. The suite of ETFs recorded six straight weeks of outflows, bleeding more than $1.8 billion, representing approximately 15% of AUM.
  • Year-to-date, Ethereum ETFs have also shed 2.8 times the amount Bitcoin ETFs have, despite being only an eighth the size.
  • Ethereum has had a particularly rough year. The chain hosts most stablecoins, but it's still unclear to investors how issuing and tokenizing assets on Ethereum will add value for token holders.
• As expected, holders of altcoin ETFs (namely Solana and XRP) have largely remained in their positions. These ETFs have much lower AUMs and, as such, much less speculative interest from traders. As market conditions improve, it's likely that AUM for these ETFs will grow alongside risk-taking.

Stablecoin Contraction

• Stablecoins are posting one of the largest periods of contraction in recent memory, with USDT and USDC both shedding supply. USDC, the largest stablecoin, has dropped 6.67%, while USDT has dropped 5.4% year-to-date. Total stablecoin supply has dropped 1.4% in the last week, the largest decline since early 2023.
  • While the Binance hack has been a catalyst, slow liquidity drains have been a recurring issue in crypto. Combined with hacks and exploits seemingly every day, liquidity in crypto has quickly retreated.
• Stablecoins have been a strong gauge of overall liquidity conditions in onchain markets; many tokens use stablecoins as a base pair when trading on an AMM, acting as a safe-haven asset that users can hold. The reduction of overall stablecoin supply implies large holders are exiting crypto entirely and withdrawing to traditional rails.
  • Most flows have left Ethereum; the chain boasted the largest stablecoin balance at the start of the year but has since dropped to second behind Tron. Stablecoin balance on Ethereum now sits at $67 billion, down more than 20% this year. Stablecoin balances across chains may put additional pressure on Ethereum’s value proposition. With more hacks and exploits, many users are prioritizing the safety of their dollars over being onchain.

DATs Crushing

• Cumulative market capitalization for digital asset treasury companies (DATs) has dropped nearly $100 billion since September, mirroring the prices of their underlying assets. The suite of equities is led by Strategy, the largest public holder of Bitcoin, which trades at roughly a $50 billion market cap.
  • DATs have served as a novel instrument for Wall Street. These companies set out to buy digital assets by issuing and selling shares at a premium to their holdings. Investors buy shares with the understanding that the company will keep raising money to buy crypto, increasing their token/share exposure.
  • The premium is measured as a multiple of NAV, or mNAV. This measure helps determine if it's accretive or dilutive for the DAT to sell its shares in the market. Above 1 mNAV the company can increase its tokens/share by selling stock to buy tokens. Below 1 mNAV the company is better off selling tokens to buy shares.
• However, a new dynamic is being introduced: DATs are increasingly becoming active participants in crypto ecosystems, finding ways to passively increase tokens per share without tapping into capital markets. Cypherpunk Technologies (CYPH) is an example where the company mines Zcash to passively increase its DAT holdings without needing to raise capital to purchase. This further supports the equity and incentivizes buying since company operations work to increase the treasury balance.