Hedge funds, which played a significant role in the rise of U.S. exchange-traded funds (ETFs) that invest in Bitcoin, are now experiencing a swift withdrawal from their holdings. Data from CF Benchmarks, a subsidiary of crypto exchange Kraken, reveals that aggregate Bitcoin ETF allocations among the largest hedge fund holders dropped by 28% from the third quarter to the fourth quarter of 2025.
The decline in Bitcoin’s value has been dramatic, plummeting nearly 50% from its October high of over $126,000. As of Monday, Bitcoin traded at approximately $64,300, marking its lowest point since February 6. This drop comes amid rising concerns about U.S. tariffs impacting global markets, contributing to a continuous selloff that began in October. During this period, fast-money investors have been rapidly reducing their exposure to digital assets, coinciding with decreasing yields from previously lucrative trading strategies.
Gabe Selby, head of research at CF Benchmarks, noted in a recent report that the prevailing trend in recent months has been hedge fund de-risking. He indicated that a peak in October prompted systematic reductions in trading positions among these funds.
Evidence of this retreat is apparent in regulatory filings, particularly with Brevan Howard, which significantly altered its stance in BlackRock’s iShares Bitcoin Trust. This hedge fund became the largest seller of the spot ETF in the fourth quarter, slashing its stake by about 86% to 5.5 million shares, which reduced the value of its position from roughly $2.4 billion to $275 million.
The shift in hedge funds’ positions ties partially to a clear change in price momentum. Bitcoin’s decline has often outpaced macroeconomic threats that it was originally meant to mitigate, casting doubt on the argument that Bitcoin serves as a hedge against inflation, currency devaluation, or stock market instability.
In addition to these price movements, the pullback reflects mechanical factors as well. The strategy of Bitcoin basis trading gained popularity among hedge funds over the past two years, wherein funds purchased spot Bitcoin ETFs while simultaneously shorting CME futures to capture the premium between futures and spot prices. This was a widely accepted carry trade that did not require a specific price direction prediction. However, since Bitcoin ETFs were approved, the high returns from this strategy have diminished, with annualized returns dropping from double digits to around 4% as of February 9, as more traders crowded into the arbitrage space.
Despite the overall trend of reduction, some investors have bucked this pattern. For instance, the Emirate of Abu Dhabi increased its investment in Bitcoin during the same quarter, boosting its position in IBIT by 46%.
