Galaxy Report Finds Nine Hedge Funds Drove Bulk of Bitcoin ETF Outflows

A small cluster of hedge funds and investment banks accounted for the majority of institutional selling in US spot Bitcoin exchange-traded funds during the 2026 market downturn, according to a report published on Monday by Galaxy Research ¹.

Between the end of September 2025 and June 2026, institutional holders filing quarterly 13F forms with the SEC reduced their spot ETF holdings by 14%, falling from 355,000 BTC to 307,000 BTC ¹. Nine institutions drove the entirety of that net decline: Millennium Management, Brevan Howard, Goldman Sachs, Capula Management, Farallon Capital, D.E. Shaw, Schonfeld Strategic Advisors, Symmetry Investments, and Tudor Investment ¹. Together, the nine firms shed 68,000 BTC in ETF exposure—reducing their positions by between 29% and 100%—while the remaining 2,200 filers absorbed roughly 20,000 BTC ¹. Buyers stepping into the asset class included Morgan Stanley's wealth management arm, Mubadala, and the Abu Dhabi Investment Council ¹.

Vanishing Basis Margins Squeeze Arbitrage

Galaxy head of firmwide research Alex Thorn attributed the institutional departures to deteriorating arbitrage yields rather than negative sentiment toward $BTC ¹. Many multi-strategy desks were engaged in a cash-and-carry trade: buying spot Bitcoin ETF shares while shorting CME Bitcoin futures to capture the spread between the two ¹.

That spread has tightened sharply. The front-month futures basis averaged 7.9% annualized in the 30 days preceding Bitcoin's record peak, sitting 3.9 percentage points above three-month Treasury bills ¹. In the 30 days through Oct. 21, the basis shrank to 4.8%, just 0.6 percentage points above cash yields ¹. After subtracting financing, rolling expenses, and margin requirements, the strategy nets approximately 1.5 percentage points above cash, which Thorn concluded fails to justify the trade's tail risk ¹. Commodity Futures Trading Commission data shows a matching contraction, with leveraged funds cutting net-short futures positioning by 57% alongside an equivalent drop in asset managers' net longs ¹.

At the time of writing, $BTC trades around $80,380. Despite the hedge fund unwind, overall spot ETF reserves proved resilient, declining only 11% from their October 2025 peak to their July low while underlying spot prices halved ¹. Spot funds have since accumulated 87,000 BTC from their June trough, signaling renewed directional accumulation alongside recent periods where US spot Bitcoin ETFs drew over $1B in three days ¹.