Wall Street’s Fast Money Fled Bitcoin ETFs, Sovereign Funds Stepped In

Wealth platforms and sovereign funds increased their holdings while nine hedge funds and banks reduced their exposure to spot Bitcoin ETFs, according to findings from Galaxy Research, as the cash-and-carry trade diminished.

A Galaxy Research report released on Monday revealed that a small group of banks and hedge funds accounted for nearly all the institutional divestment from U.S. spot Bitcoin ETFs, concurrently with wealth platforms and sovereign funds stepping in to purchase. Institutions that submit quarterly 13F reports to the SEC possessed 355,000 BTC worth of spot ETF shares at the conclusion of September 2025, immediately preceding Bitcoin's highest price ever recorded. This figure subsequently decreased to 307,000 BTC by June 2026, representing a 14% reduction, the report indicated.

The majority of this decline was driven by nine specific firms: Millennium Management, Brevan Howard, Goldman Sachs, Capula Management, Farallon Capital, D.E. Shaw, Schonfeld Strategic Advisors, Symmetry Investments, and Tudor Investment. Collectively, these entities decreased their exposure by 68,000 BTC, which equates to approximately $5.4 billion based on current valuations, trimming their stakes by amounts ranging from 29% to 100%. Conversely, the remaining approximately 2,200 filers added roughly 20,000 BTC in total, valued at around $1.6 billion. Purchasers included the wealth management division of Morgan Stanley, Mubadala from Abu Dhabi, and the Abu Dhabi Investment Council.

Holders categorized as individuals, family offices, and advisors who do not file 13Fs lowered their holdings by only 6.6% despite the price experiencing a 49% drop.

Alex Thorn, Galaxy's head of firmwide research, stated that the sellers were primarily executing a trade rather than placing a wager on Bitcoin. Many utilized the cash-and-carry approach, which involved buying spot ETF shares while simultaneously shorting CME Bitcoin futures to capture the difference between the two, termed the basis. This gap has nearly disappeared. In the thirty days leading up to Bitcoin's peak, the front-month basis averaged 7.9% annualized, which was 3.9 percentage points higher than three-month Treasury bills. However, in the thirty days concluding on Oct. 21, the average stood at 4.8%, only 0.6 points above the bills. The report estimates that after accounting for fees, margin, and rolling costs, this trade now yields about 1.5 points over cash. Thorn observed, "That arithmetic, not the price, is why the multi-strategy desks left."

CFTC data pertaining to CME Bitcoin futures corroborates a similar trend. The net long position held by asset managers decreased from 43,300 BTC during the week of Bitcoin's all-time high down to 18,400 BTC, a 57% decline. The net short position on the futures side of the carry trade, held by leveraged funds, diminished by the equivalent proportion, moving from 71,400 BTC to 30,600 BTC. Open interest has fallen by 28% when measured in Bitcoin terms and 51% when measured in dollar terms.

Futures contracts further out still present some opportunity; November and December contracts were priced between 6.3% and 6.5% as of the Oct. 21 closing, which is approximately 2 points above bills before expenses. Nevertheless, Thorn maintained that the marginal advantage does not compensate for the trade's potential downside risk, citing that in December 2022, the basis inverted to a negative 31% annualized rate.

Overall, spot ETF holdings saw a modest 11% decrease from their October 2025 high to their July low, whereas Bitcoin itself declined by 53%. Since the June low, these funds have acquired 87,000 BTC, which Galaxy characterizes as directional buying rather than carry activity. Recent trading flows have shown inconsistency; earlier this month, the ETFs shed close to $1 billion over a fortnight before reaching their best single day in almost a month on Oct. 19, when BlackRock’s IBIT was responsible for all the accumulation. Following that, a three-day period of $1 billion inflows has been succeeded by substantial outflows. This week, flows for the BTF ETF turned positive again, though in smaller quantities, registering around $286 million in inflows to date. The 13F data available extends through June, meaning it does not reflect more recent market movements. Galaxy has disclosed that it maintains Bitcoin holdings.