bitcoin ·
Sovereign Wealth Buys Bitcoin ETFs After Hedge Funds Sell Off
For the month, Bitcoin ETFs have shown positive movement, following inflows exceeding $400 million this week, suggesting a significant November ahead.
Reviewing filings from just before Bitcoin's October 2025 peak through the end of June reveals a trend: nine hedge funds and banks collectively divested approximately 68,000 Bitcoin worth of ETF shares over those nine months, amounting to about $5.4 billion at current valuations.
Institutions such as Millennium, Brevan Howard, Goldman Sachs, and D.E. Shaw were among those leading the sales, with some reducing their positions by a third while others liquidated entirely. This trading activity was not driven by a belief in Bitcoin's value.
The strategy involved simultaneously betting against Bitcoin in the futures market while holding the ETF, profiting from the price differential, provided that gap exceeded returns from Treasury bills. Initially, this gap yielded 7.9% annually, which was 3.9 points better than T-bills, but by late October, it had dropped to 4.8%, barely half a point better.
Alex Thorn of Galaxy noted that after factoring in fees and financing, the residual return was only about 1.5 points over cash, stating, “That arithmetic, not the price, is why the multi-strategy desks left.” Futures data corroborated this, showing both sides of that trade shrinking by nearly identical amounts, around 57% each.
Conversely, Morgan Stanley’s wealth management division, Mubadala, and the Abu Dhabi Investment Council were among those who acquired assets. Additionally, roughly 2,200 other filers added about 20,000 Bitcoin in total. Thus, hedge funds exited while sovereign funds and wealth managers made purchases.
Meanwhile, smaller investors—advisers, family offices, and private individuals—reduced their holdings by only 6.6% despite the price declining 49%, indicating sustained commitment from retail participants.
Since June, funds have accumulated 87,000 Bitcoin through direct purchasing, rather than through arbitrage. Furthermore, the interest rate outlook is shifting; traders had placed 59% odds on two rate hikes by year-end a month ago, but today those odds stand at zero, suggesting expectations for tightening have halved.
This shift in expectations for less monetary tightening provides support for various risk assets. October's capital flows already reflect this change, showing a decrease of $907 million at the midpoint, though it is currently flat through Tuesday, with $724 million arriving in the last eight sessions.
The departure of speculative capital and the retention of committed investors establish a foundation for a potential bull market rally.
Why it matters
The shift from hedge fund selling to sovereign wealth buying indicates a change in institutional sentiment regarding Bitcoin. This move suggests that major, stable capital sources are now accumulating assets, which could underpin future market stability and growth.
