Bitcoin ETF hedge funds that used U.S. spot funds for an arbitrage trade have pulled back sharply, and sovereign wealth funds are among the buyers replacing them. A Galaxy Research report, highlighted in Decrypt’s Morning Minute newsletter on October 29, found that nine hedge funds and banks cut about 68,000 BTC of ETF shares between September 2025 and June 2026. Galaxy says the reason was arithmetic, not lost faith in Bitcoin.
Key Takeaways
- Nine firms, including Millennium, Goldman Sachs and D.E. Shaw, cut 68,000 BTC of spot ETF exposure (about $5.4 billion at current prices).
- The basis fell from 7.9% to 4.8% annualized, just 0.6 points above T-bills.
- Morgan Stanley’s wealth arm, Mubadala and the Abu Dhabi Investment Council were among the buyers.
- Q3 13F filings are due by Nov. 16, 2026.
What happened with Bitcoin ETF hedge funds
Galaxy’s head of firmwide research, Alex Thorn, built the study from 13F filings, the quarterly holdings reports large institutions file with the SEC. According to TFTC’s summary of the report, it reached Galaxy clients on October 22 and draws on filings from roughly 2,200 institutions.
13F filers held 355,000 BTC of spot ETF shares at the end of September 2025, just before Bitcoin’s record. By June 2026 that had dropped 14% to 307,000 BTC, Decrypt reported in its full write-up.
Nine firms account for more than that entire drop: Millennium Management, Brevan Howard, Goldman Sachs, Capula Management, Farallon Capital, D.E. Shaw, Schonfeld Strategic Advisors, Symmetry Investments and Tudor Investment. Each cut its position by 29% to 100%, while the remaining filers added about 20,000 BTC (around $1.6 billion).
Who bought as Bitcoin ETF hedge funds sold
Morgan Stanley’s wealth management arm, Abu Dhabi’s Mubadala and the Abu Dhabi Investment Council were among the buyers. Investors too small to file (advisers, family offices, individuals) cut their holdings by just 6.6% while the price fell 49%. “Middle America is hodling,” newsletter author Tyler Warner wrote, in views Decrypt notes are his own. For more, see our piece on who owns the most Bitcoin.
Background and context on the basis trade
Many sellers weren’t betting on Bitcoin at all. They bought spot ETF shares, shorted CME Bitcoin futures and pocketed the gap between the two, known as the basis. That works in either price direction, as long as the gap beats Treasury bill yields.
But the gap shrank. In the 30 days before the high, the front-month basis averaged 7.9% annualized, 3.9 points above three-month T-bills. In the 30 days to Oct. 21, it averaged 4.8%, just 0.6 points above. After fees, rolling costs and margin, Galaxy estimates the trade now earns about 1.5 points over cash.
“That arithmetic, not the price, is why the multi-strategy desks left,” Thorn wrote.
CFTC data agrees. Asset managers’ net long in CME Bitcoin futures fell 57% from the all-time-high week, to 18,400 BTC from 43,300 BTC, and leveraged funds’ net short shrank by the same share, to 30,600 BTC from 71,400 BTC. Open interest is down 28% in Bitcoin terms and 51% in dollars.
November and December contracts still priced in 6.3% to 6.5% at the Oct. 21 close, about 2 points over bills before costs. Thorn argued that slim edge doesn’t justify the tail risk, noting the basis inverted to negative 31% annualized in December 2022.
A CoinShares analysis published June 4 had already found that hedge funds cut 31,400 BTC (a 39% contraction), while U.S. banks doubled their exposure in Q1 2026.
Galaxy says spot ETF holdings fell just 11% from the October 2025 peak to a July trough, while Bitcoin fell 53%. Funds have added 87,000 BTC since the June low, which Galaxy calls directional buying rather than carry, as bcointalk notes. Galaxy discloses that it holds Bitcoin.
Market snapshot
CoinGecko data as of 14:13 UTC on October 29, 2026:
| Asset | Price (USD) | 24h | 30d | 1y |
|---|---|---|---|---|
| Bitcoin (BTC) | $80,283 | -0.37% | -4.85% | -29.11% |
| Ethereum (ETH) | $2,324.40 | -0.23% | -15.05% | -42.11% |
| Solana (SOL) | $100.57 | -0.19% | -16.78% | -49.64% |
| XRP | $1.29 | -1.86% | -16.54% | -51.44% |
Bitcoin sits about 36% below its $126,080 record from Oct. 6, 2025. The Crypto Fear & Greed Index read 51, “Neutral,” on October 29.
Spot Bitcoin ETFs took in $137.3 million on Oct. 28, a third straight day of inflows, bringing cumulative net inflows to $58.1 billion, according to Decrypt. Warner wrote that the latest inflow flipped October’s Bitcoin ETF flows back into the green, after the month sat $907 million down at its midpoint. Flows remain choppy, with nearly $1 billion shed over two weeks earlier this month, Decrypt reported.
The Fed held rates at 3.75% to 4.00% on Wednesday in a 10-2 vote, with both dissenters favoring another quarter-point hike. Warner wrote that traders’ odds of two hikes by year-end fell from 59% a month ago to zero.
What to watch next
The 13F data stops in June, so it can’t show who drove the 87,000 BTC rebuild. Q3 filings are due by Nov. 16, 2026, and Decrypt says early submissions already hint at a change in tone.
The basis is the other signal to track. One possible scenario, not a forecast: if the spread widens again, carry desks could return, bringing inflows that may reverse quickly. Warner calls the current holder base a foundation for a bull rally, which is his opinion, not a prediction. Bitcoin remains highly volatile, ETF holders carry the full price risk of the underlying asset, and rate expectations can shift fast.
Frequently asked questions
Why did Bitcoin ETF hedge funds sell their shares?
According to Galaxy Research, many sellers ran a basis trade. Its spread over T-bills fell to 0.6 points, leaving about 1.5 points over cash after costs.
Which sovereign funds bought spot Bitcoin ETFs?
Decrypt’s coverage of the Galaxy report names Abu Dhabi’s Mubadala and the Abu Dhabi Investment Council, alongside Morgan Stanley’s wealth management arm.
Does the hedge fund exit mean Bitcoin will rise?
No one can say. A steadier holder base may ease selling pressure, but losses remain possible. This is information, not investment advice.
Sources
- Morning Minute: Hedge Funds Left the BTC ETF Trade and Sovereign Wealth Stepped In (Decrypt)
- Wall Street’s Fast Money Fled Bitcoin ETFs, Sovereign Funds Stepped In (Decrypt)
- Hedge Funds Fled Bitcoin ETFs, Sovereign Funds Bought · TFTC (www.tftc.io)
- Nine Wall Street Firms Dumped 68,000 BTC of Bitcoin ETFs as Sovereign Funds Bought the Dip, BigGo Finance (finance.biggo.com)
- Wall Street's Fast Money Fled Bitcoin ETFs, Then Sovereign Funds Stepped In (www.bitbase.com)
- Wall Street's Fast Money Fled Bitcoin ETFs, Sovereign Funds Stepped In, Hedge Fund (alpha-maven.com)
- Why Hedge Funds Sold Bitcoin ETFs in 2026 (bcointalk.com)
- Bitcoin ETF Holdings Fall 17% as Hedge Funds Exit (coinmarketcap.com)
- Decrypt: AI, Bitcoin, Culture, Gaming, and Crypto News – Decrypt (decrypt.co)
This article is for informational purposes only and does not constitute financial or investment advice. Cryptocurrencies are highly volatile; always do your own research before investing.
For advertising inquiries, please email . [email protected] or Telegram
