Hedge Funds Unwind Basis Trade as Sovereign Wealth Enters Bitcoin ETFs

Nine major hedge funds and banking institutions sold approximately 68,000 $BTC worth of spot exchange-traded fund shares between the October 2025 peak and late June, according to institutional 13F filings ¹. The selling—equivalent to roughly $5.4 billion—was led by Millennium, Brevan Howard, Goldman Sachs, and D.E. Shaw, with several firms liquidating their entire allocations ¹. The divestment was driven by compressing yields in the cash-and-carry basis trade rather than structural bearishness ¹. According to Galaxy's Alex Thorn, the annualized basis spread narrowed from 7.9% prior to the peak to 4.8% by late October, leaving net returns around 1.5 percentage points above cash after financing and operational fees ¹. Futures market data mirrored the shift, with both legs of the arbitrage trade shrinking by roughly 57% ¹.

Sovereign Wealth and Wealth Managers Absorb Outflows

While systematic arbitrage desks departed, institutional allocators stepped in to absorb supply ¹. Filings show that Mubadala, the Abu Dhabi Investment Council, Morgan Stanley’s wealth management division, and roughly 2,200 other filers purchased an aggregate of about 20,000 Bitcoin ¹. Non-reporting retail and wealth advisory accounts demonstrated stability, reducing holdings by just 6.6% despite an underlying 49% drawdown in Bitcoin's spot price ¹. The transition follows findings that nine hedge funds drove bulk of Bitcoin ETF outflows through the unwind of mechanical market-neutral positions ¹.

Since June, spot exchange-traded products have absorbed 87,000 Bitcoin in outright directional allocations rather than delta-neutral arbitrage ¹. Flows have rebounded sharply in late October, adding $724 million across eight trading sessions and offsetting mid-month net redemptions that had reached $907 million ¹. Macro conditions have concurrently stabilized; the Federal Reserve maintained benchmark policy rates between 3.75% and 4.00% in a 10-2 vote, while interest-rate futures moved to price out previously anticipated monetary tightening by year-end ¹. At the time of writing, Bitcoin was trading near $80,025.