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Sovereign Funds Step In as Institutions Sell Bitcoin ETFs
Institutional selling in U.S. spot bitcoin ETFs was concentrated among a handful of hedge funds and banks, while wealth platforms and sovereign funds bought, Galaxy Research said in a report Monday.
Nine firms—Millennium Management, Brevan Howard, Goldman Sachs, Capula Management, Farallon Capital, D.E. Shaw, Schonfeld Strategic Advisors, Symmetry Investments and Tudor Investment—cut exposure by 68,000 bitcoin, or about $5.4 billion at current prices, with reductions of 29% to 100%. That exceeded the 48,000 bitcoin total reduction across all 13F filers, implying the remaining roughly 2,200 filers added about 20,000 bitcoin, worth around $1.6 billion.
Buyers included Morgan Stanley wealth management, Mubadala and the Abu Dhabi Investment Council; the report also cited the Abu Dhabi Investment Authority. Advisors, family offices and individuals that do not file 13F reports cut holdings by only 6.6%, even as bitcoin fell 49%.
Alex Thorn, head of institutional research at Galaxy, said most sellers were trading, not betting on bitcoin. Many ran a cash arbitrage: buy spot ETF shares and short CME bitcoin futures to capture the basis. That spread has nearly vanished. In the 30 days before bitcoin peaked, the annualized nearby basis averaged 7.9%, 3.9 percentage points above Treasury bills. In the 30 days before October 21, it averaged 4.8%, just 0.6 points above Treasury yields. After fees, roll costs and margin, the trade now yields only about 1.5 points more than cash, Thorn wrote. It was not the price but the arithmetic that drove multistrategy desks to exit, he said.
CFTC data on CME bitcoin futures echoed the trend. Asset managers net long positions fell 57%, from 43,300 bitcoin in the week bitcoin hit its all-time high to 18,400. Leveraged funds net shorts—the futures leg of arbitrage trades—fell by the same amount, from 71,400 to 30,600 bitcoin. Open interest dropped 28% in bitcoin terms and 51% in dollar terms.
Longer-dated futures still offer some yield. As of the October 21 close, November and December contracts implied annualized yields of 6.3% to 6.5%, about 2 points above Treasuries before costs. Thorn said the modest advantage did not compensate for tail risk: in December 2022, the basis inverted to an annualized negative 31%.
Overall, spot ETF holdings are down only 11% from the October 2025 peak to the July low, while bitcoin fell 53%. Since the June low, the funds have added 87,000 bitcoin, which Galaxy calls directional buying rather than arbitrage.
Flows have been volatile. Decrypt reported earlier this month that the ETFs saw nearly $1 billion of outflows over two weeks, then their best single-day performance in nearly a month on October 19, when only BlackRock IBIT took in money. After three consecutive days of combined $1 billion of inflows, a significant outflow followed. This week, BTF ETFs returned to positive flows, though on a smaller scale: about $286 million so far.
13F data are current through June and do not reflect more recent changes. Galaxy disclosed that it holds bitcoin.