(Bloomberg) - Hedge funds that helped fuel a boom in US exchange-traded funds holding Bitcoin are in rapid retreat.
Aggregate Bitcoin ETF allocations among the largest hedge fund holders fell 28% from the third to the fourth quarter of 2025, according to data compiled by CF Benchmarks, a wholly-owned subsidiary of crypto exchange Kraken.
Bitcoin is down almost 50% from its October peak of over $126,000. The token slid as much as 4.8% in early Asia trading on Monday to nearly $64,300, its lowest level since Feb. 6, as fresh nervousness over US tariffs rippled 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.
“The dominant theme over the last two quarters was hedge fund de-risking,” Gabe Selby, head of research at CF Benchmarks, wrote in a Feb. 19 research note. “The October blow-off top appears to have triggered systematic position reductions.”
The unwind is visible in regulatory filings. Brevan Howard overhauled its position in BlackRock’s iShares Bitcoin Trust, becoming the largest seller of the spot ETF in the fourth quarter. Its stake fell about 86% to 5.5 million shares, reducing the value of its spot position from about $2.4 billion to $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 became one of the most popular strategies in hedge fund playbooks over the past two years. Funds bought spot Bitcoin ETFs while shorting CME 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, annualized returns on the strategy often hit double digits, but as of Feb. 9 were languishing at around 4% after more and more desks crowded out the arbitrage, according to Amberdata.
Some investors have bucked the trend by adding during the downturn. The Emirate of Abu Dhabi increased its IBIT position by 46% in the fourth quarter of 2025.
Investment advisers increased their aggregate IBIT positions every quarter over the past year, resulting in a 145% 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.
Over 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.”
By Sidhartha Shukla
