Morning Minute: Hedge Funds Left the BTC ETF Trade and Sovereign Wealth Stepped In
Nine hedge funds and banks sold about 68,000 Bitcoin worth of ETF shares over nine months, roughly $5.4 billion at current prices, while sovereign wealth funds and wealth managers stepped in to buy.
Every quarter, major institutions report their holdings to the SEC. Millennium, Brevan Howard, Goldman Sachs, D.E. Shaw and five other institutions led the selling, with some trimming their positions by a third while others sold everything.
This trading strategy had nothing to do with belief in Bitcoin's price movement. The funds bought the ETF while simultaneously betting against Bitcoin in the futures market, profiting from the gap between these two prices. When executed correctly, this strategy generates returns regardless of Bitcoin's price direction—as long as the price gap exceeds what could be earned from Treasury bills.
That arithmetic, not the price, is why the multi-strategy desks left.
Before Bitcoin's peak, this arbitrage gap paid 7.9% annually, 3.9 percentage points better than Treasury bills. By late October 2025, it had fallen to 4.8%, barely half a point better. After accounting for fees and financing costs, Galaxy's Alex Thorn estimates the remaining return is about 1.5 percentage points over cash, making the strategy no longer worthwhile.
New Buyers Enter
As hedge funds exited, new buyers stepped in. Morgan Stanley's wealth management arm, Mubadala, and the Abu Dhabi Investment Council were among the institutional investors purchasing these shares. Approximately 2,200 other filers collectively added about 20,000 Bitcoin to their holdings during this period. Meanwhile, smaller investors—advisers, family offices, and individual investors—reduced their holdings by just 6.6% even as Bitcoin's price fell 49%, indicating continued confidence in the asset.
This shift suggests a fundamental change in market dynamics, with speculative money exiting and long-term investors entering.
Market Shifts
The Federal Reserve held rates steady at 3.75%-4.00% in a 10-2 vote, with dissenters favoring another quarter-point hike. However, market expectations have shifted dramatically—just a month ago, traders assigned 59% probability to two rate hikes by year-end; today, that probability stands at zero. Expected tightening has been cut roughly in half, which benefits risk assets like Bitcoin.
Bitcoin ETFs demonstrate this changing sentiment. After initially showing $907 million in outflows for October, the month has essentially flattened with $724 million in inflows arriving in just the last eight sessions. This reversal suggests that while speculative money has left, more committed investors remain and are taking advantage of lower prices.
The broader crypto market has also seen notable developments. Visa's stablecoin settlement volume has reached $25 billion annualized, more than 10x its level from the previous year. Meanwhile, Y Combinator has identified six crypto focus areas for the next six months, including AI-powered fundraising, stablecoins, and real-world asset tokenization, indicating continued institutional interest in blockchain applications beyond pure speculation.
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