Sovereign Wealth Steps In as Hedge Funds Exit BTC ETF

Morning Minute: Hedge Funds Left the BTC ETF Trade and Sovereign Wealth Stepped In

Hedge funds cut back exposure to U.S. spot Bitcoin exchange-traded funds (ETFs) between late 2025 and mid-2026, while longer-term allocators increased their holdings, according to research from Galaxy Research based on SEC 13F filings.

Galaxy’s data show 13F filers held the equivalent of 307,000 BTC in U.S. spot Bitcoin ETFs as of June 2026, down 14% from 355,000 BTC nine months earlier. However, the decline was concentrated in a small group of large, fast-moving institutions rather than broad-based selling.

Galaxy found that nine hedge funds and banks accounted for the entire reduction—and more—cutting a combined 68,000 BTC worth of ETF exposure over the period. At today’s prices, that is roughly $5.4 billion, with individual position reductions ranging from 29% to 100%. Those firms included Millennium, Brevan Howard, Goldman Sachs, Capula, Farallon, D.E. Shaw, Schonfeld, Symmetry, and Tudor.

Meanwhile, the roughly 2,200 other filers increased exposure in aggregate by about 20,000 BTC, or roughly $1.6 billion at today’s prices. Buyers cited in the dataset included Morgan Stanley’s wealth management arm, Abu Dhabi’s Mubadala, and the Abu Dhabi Investment Council.

Why hedge funds reduced exposure appears tied to market structure rather than a broad shift away from Bitcoin. Galaxy attributed much of the selling to changes in relative-value opportunities, particularly the shrinking economics of cash-and-carry and related arbitrage strategies commonly used by leveraged and multi-strategy funds.

Higher yields on U.S. Treasury bills have also affected the trade’s appeal. Galaxy noted that the cash-and-carry basis compressed to about 0.6 points over T-bills, reducing the incentive for leveraged funds to keep capital in ETF-linked arbitrage when risk-free rates became more competitive.

Alex Thorn, Galaxy’s head of firmwide research, summarized the dynamic as “arithmetic, not the price,” explaining that multi-strategy desks exited as the trade became less attractive.

The shift matters because it suggests a change in who holds Bitcoin ETF exposure, not necessarily whether the ETF wrapper is gaining acceptance. Galaxy’s research characterizes the flow as a rotation from fast-money participants toward capital typically associated with longer holding periods, including sovereign wealth, wealth platforms, and registered investment advisers.

Other market positioning data also point to a reduced footprint of carry-style trades compared with prior peaks. CFTC figures cited in the broader discussion show leveraged funds’ net short position at 26,055 BTC as of October 20, down about 78% from the December 2024 peak. Asset managers’ net long positions were also lower, at 15,134 BTC, down from 43,335 near Bitcoin’s October 2025 record.

Galaxy highlighted several datapoints to monitor next: the next wave of 13F filings covering the quarter ending September 2026, any formal disclosures from Mubadala or the Abu Dhabi Investment Council regarding ETF holdings, and the CME basis spread relative to three-month Treasury bill yields.

In the near term, fund flow momentum has improved. After more than $400 million of inflows this week, BTC ETFs have turned positive for the month, adding context to the ongoing shift in ETF ownership even as the mix of holders continues to change.

Despite the rotation among institutional cohorts, the ETF structure has remained intact. Comments cited from Bitwise Asset Management CIO Matt Hougan described the move as “a tale of two sides,” with hedge fund selling offset by longer-term buying. Total net inflows into U.S. spot Bitcoin ETFs since their 2024 launch were reported as more than $54 billion.