Hedge funds that piled into US Bitcoin funds are first to exit
A shift in price momentum is partly the reason. Bitcoin has fallen with, and at times faster than, the macro risks it was meant to hedge
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HEDGE funds that fuelled a boom in US exchange-traded funds (ETFs) holding Bitcoin are in rapid retreat.
Aggregate Bitcoin ETF allocations, among the largest hedge fund holders, fell 28 per cent from the third to the fourth quarter of 2025, data compiled by CF Benchmarks, a wholly-owned subsidiary of crypto exchange Kraken, indicated.
Bitcoin is down by almost half from its October peak of over US$126,000. The token slid as much as 4.8 per cent in early Asia trading on Monday (Feb 23) to nearly US$64,300, its lowest level since Feb 6, amid fresh nervousness over US tariffs rippling through global markets.
The losses extend a prolonged selloff that began in October. Since then, with digital-asset prices sliding and yields on a once-lucrative trading strategy shrinking, fast-money investors have steadily cut exposure.
Gabe Selby, head of research at CF Benchmarks, wrote in a Feb 19 research note: “The dominant theme over the last two quarters was hedge fund de-risking. The October blow-off top appears to have triggered systematic position reductions.”
The unwind is visible in regulatory filings. Brevan Howard, a global alternative investment management platform, overhauled its position in BlackRock’s iShares Bitcoin Trust, becoming the largest seller of the spot ETF in the fourth quarter.
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Its stake fell about 86 per cent to 5.5 million shares, reducing the value of its spot position from about US$2.4 billion to US$275 million.
Part of the retreat reflects a simple shift in price momentum. Bitcoin has fallen alongside – and at times faster than – the macro risks it was meant to hedge, undermining the institutional pitch that it could offset inflation, currency debasement or equity stress.
But the pullback is also mechanical.
Bitcoin basis trading has become one of the most popular strategies in hedge fund playbooks in the past two years. Funds bought spot Bitcoin ETFs while shorting Chicago Mercantile Exchange futures, capturing the premium at which futures traded above spot. It was a near-consensus carry trade that required no view on price direction.
For months after the Bitcoin ETFs were first approved, annualised returns on the strategy often hit double digits, but as of Feb 9, were languishing at around 4 per cent after more and more desks crowded out the arbitrage, said Amberdata.
Some investors have bucked the trend by adding during the downturn. The Emirate of Abu Dhabi increased its IBIT position by 46 per cent in the fourth quarter of 2025.
Investment advisers have increased their aggregate IBIT positions every quarter in the past year, resulting in a 145 per cent year-over-year rise, CF Benchmarks’ data show. They may represent a stickier source of capital, as such firms “don’t typically trade around short-term volatility”, Selby wrote.
In the past year, the “speculative capital that powered the rally has retreated and in its place, a more durable ownership base has formed”, he wrote. “And it’s playing out even as prices correct.” BLOOMBERG
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