Hedge Funds Pull Back from Bitcoin ETFs
(Bloomberg) — Hedge funds that played a role in the surge of U.S. exchange-traded funds (ETFs) linked to Bitcoin are now pulling back quickly.
Data from CF Benchmarks, a subsidiary of the cryptocurrency exchange Kraken, shows that the largest hedge fund investments in Bitcoin ETFs dropped by 28% from Q3 to Q4 of 2025.
Bitcoin itself has seen a nearly 50% decline from its peak of over $126,000 in October. Early trading on Monday in Asia showed a drop of up to 4.8%, bringing the price down to approximately $64,300, which is its lowest since February 6. This slide has been influenced by renewed concerns over U.S. tariffs affecting global markets.
This downturn has been a continuation of a trend that started back in October. During this period, investors looking for quick returns have been steadily decreasing their investments as digital asset values have declined and profitable trading strategies have waned.
According to Gabe Selby, head of research at CF Benchmarks, “The dominant theme over the past two quarters has been hedge fund risk aversion.” He noted, “The blowout at the top in October seems to have resulted in systematic position reductions.”
The withdrawal is reflected in regulatory filings. For example, Brevan Howard revamped its holdings in BlackRock’s iShares Bitcoin Trust, which became the largest seller of the spot ETF in the fourth quarter. Their stake diminished from about 2.4 billion dollars to 275 million, with their shares falling by roughly 86% to 5.5 million.
Some of the reductions can be linked to simple price dynamics. Bitcoin has dropped in value, much like macroeconomic risks it was thought to hedge against, challenging the notion that it could protect against inflation, currency depreciation, and market stress.
However, the decline also has a mechanical aspect.
Bitcoin basis trading has gained traction among hedge funds over the past two years. This involved purchasing a spot Bitcoin ETF while simultaneously shorting CME futures, allowing them to profit from the premium futures were trading above spot prices. It’s a strategy that didn’t necessitate a directional view on prices.
Over time, returns from this strategy often reached double digits, but as of February 9, those have dwindled to around 4%, as more traders engaged in arbitrage, according to AmberData.
Interestingly, not all investors followed this trend. The Emirate of Abu Dhabi actually increased its position in IBIT by 46% in the last quarter of 2025.
