Hedge Funds Unwind Bitcoin ETF Carry Trades as Sovereign Capital and Wealth Platforms Accumulate

The story in Bitcoin ETFs this year isn’t conviction turning bearish; it’s math turning mediocre. As the futures basis compressed, the cash‑and‑carry trade lost its edge, prompting a sharp rotation from multi‑strategy hedge funds into longer‑horizon allocators like sovereign wealth funds and large wealth platforms.

Who sold—and who quietly bought

Institutions reporting 13F holdings owned the equivalent of 355,000 BTC in U.S. spot Bitcoin ETFs at September 2025’s quarter‑end, just ahead of the all‑time high. By June 2026, that tally slipped to 307,000 BTC, a 14% decline. Remarkably, nine firms explain more than the entire drop: Millennium Management, Brevan Howard, Goldman Sachs, Capula Management, Farallon Capital, D.E. Shaw, Schonfeld Strategic Advisors, Symmetry Investments, and Tudor Investment. Collectively they cut 68,000 BTC of exposure—about $5.4 billion at current prices—reducing positions between 29% and 100%.

The rest of the 13F universe—roughly 2,200 filers—added an estimated 20,000 BTC in aggregate (about $1.6 billion). On the buy side: Morgan Stanley’s wealth management arm, Abu Dhabi’s Mubadala, and the Abu Dhabi Investment Council. Outside the 13F cohort, advisers, family offices, and individuals trimmed just 6.6% even as Bitcoin fell 49%.

The basis shrank—and with it, the trade

Per Galaxy Research, this wasn’t a sudden loss of faith; it was an unwind of a basis‑capture machine. The common setup—long spot ETF shares and short CME Bitcoin futures—thrives on a healthy spread over risk‑free rates. That spread has thinned:

- In the 30 days before Bitcoin’s high, the front‑month basis averaged 7.9% annualized, about 3.9 percentage points above three‑month Treasury bills. - In the 30 days to October 21, it averaged 4.8%, roughly 0.6 points over bills. - After fees, rolls, and margin, Galaxy estimates the trade nets only ~1.5 points over cash.

“That arithmetic, not the price, is why the multi‑strategy desks left,” Galaxy’s Alex Thorn wrote. CFTC positioning corroborates the unwind: asset managers’ net long on CME fell from 43,300 BTC at the peak week to 18,400 BTC (−57%), while leveraged funds’ net short—typically the carry leg—shrank proportionally from 71,400 BTC to 30,600 BTC. Open interest is down 28% in BTC terms and 51% in dollar terms.

Further out on the curve, November and December futures implied 6.3%–6.5% at the October 21 close—about 2 points over bills before costs—but that slim pickup struggles to compensate for tail risk. In December 2022, the basis inverted to −31% annualized, a reminder that “safe carry” in crypto can turn abruptly.

Holder quality is changing, and that matters

From the October 2025 peak to the July trough, spot ETF holdings slipped just 11% even as Bitcoin fell 53%. Since June’s low, funds have added 87,000 BTC—characterized by Galaxy as directional buying rather than carry. That shift—from basis‑sensitive capital to allocators willing to sit through volatility—often reshapes microstructure. It can lower forced‑unwind risk and reduce reflexive deleveraging, but it may also temper on‑demand liquidity when volatility spikes, since passive and sovereign capital tends to trade less.

Flows still look choppy in the short run. ETFs shed nearly $1 billion over two weeks earlier this month, then posted their best day in nearly a month on October 19, when BlackRock’s IBIT absorbed the day’s buying. A subsequent three‑day, $1 billion inflow burst gave way to heavy outflows, and BTF’s flows turned positive again this week—smaller in size, around $286 million. Keep in mind: 13F disclosures only run through June, so they won’t reflect these more recent swings.

The broader takeaway is straightforward: when the futures basis pays little over bills after costs, capital with tight risk budgets steps aside, and balance sheets built for multi‑year horizons step in. If the curve re‑steepens—or if cash yields move—fast money can return. Until then, Bitcoin ETFs look increasingly owned by investors who are less interested in clipping basis and more interested in exposure.