Large hedge fund holdings in bitcoin ETFs have already fallen 28% in the fourth quarter.
JAKARTA – Hedge funds that previously fuelled the surge in United States bitcoin exchange‑traded funds (ETFs) are now rapidly pulling back their investments.
Combined allocations to bitcoin ETFs, most of which were held by large hedge funds, fell 28% from the third to the fourth quarter of 2025, according to data from CF Benchmarks, a wholly owned subsidiary of crypto exchange Kraken.
According to the Business Times, bitcoin’s price has dropped to nearly half of its October peak of more than US$126,000.
During Asian trading on Monday (23/2), bitcoin fell as much as 4.8% to around US$64,300, its lowest level since 6 February, as renewed concerns over United States tariffs rattled global markets.
The decline extends a sell‑off that has persisted since October. With digital asset prices weakening and returns from earlier trading strategies shrinking, fast‑money investors have gradually reduced their exposure.
Gabe Selby, Head of Research at CF Benchmarks, wrote in a research note dated 19 February that the dominant theme over the past two quarters has been hedge funds engaging in de‑risking. “The October price peak appears to have triggered a systematic reduction in positions,” he wrote.
De‑risking refers to reducing the level of risk in an investment portfolio. In financial markets, it is the act of investors, particularly institutions such as hedge funds, cutting or closing high‑risk positions and reallocating capital to safer or more stable assets, usually during periods of rising uncertainty or declining return potential.
This shift is reflected in regulatory filings. Brevan Howard, a global alternative investment platform, sharply cut its holdings in the BlackRock iShares Bitcoin Trust and was the largest seller of spot ETFs in the fourth quarter.
Its shareholdings fell by around 86% to 5.5 million shares, reducing the value of its spot position from roughly US$2.4 billion to US$275 million.
Part of the withdrawal is linked to changing price momentum. Bitcoin has fallen in line with, and at times even faster than, macro risks that should have been predictable, weakening the institutional argument that the asset can serve as a hedge against inflation, currency depreciation, or equity‑market stress.
However, the pullback is also mechanical. The bitcoin basis‑trading strategy, which involves buying spot ETFs while shorting futures on the Chicago Mercantile Exchange, has been a favourite among hedge funds over the past two years because it allowed them to capture a premium over spot prices without needing to predict market direction.
Initially, the strategy generated double‑digit annual returns. But by 9 February, returns had shrunk to around 4% due to increasingly crowded arbitrage desks, according to Amberdata.
Even so, not all investors are reducing exposure. Some more stable institutional investors, including those from the United Arab Emirates, increased their holdings in IBIT by 46% in the fourth quarter of 2025.
Overall, CF Benchmarks data shows that long‑term institutional investors have continued to add positions each quarter, with total holdings rising 145% year‑on‑year.
“Speculative capital that previously drove the price rally has retreated and been replaced by a more durable ownership base, even as prices correct,” Selby said. (DK/LM)
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