Sovereign Wealth Funds Step In As Hedge Funds Exit Bitcoin ETFs

Sovereign wealth funds and institutional wealth managers have stepped into the Bitcoin exchange-traded fund market as multi-strategy hedge funds wind down their arbitrage positions, according to Decrypt.

Quarterly filings submitted to the U.S. Securities and Exchange Commission covering the period from just before Bitcoin's October 2025 high through June show that nine hedge funds and banks sold roughly 68,000 Bitcoin worth of ETF shares, amounting to approximately $5.4 billion at current prices. Prominent institutional sellers included Millennium, Brevan Howard, Goldman Sachs, and D.E. Shaw.

According to the report, the departing desks were executing an arbitrage trade rather than taking a directional stance on Bitcoin. Investors purchased ETF shares while simultaneously shorting Bitcoin in the futures market to capture the price spread. Galaxy’s Alex Thorn noted that the trade's annualized yield compressed from 7.9% prior to the market high down to 4.8% by late October, leaving an estimated 1.5 percentage points over cash after fees and financing.

"That arithmetic, not the price, is why the multi-strategy desks left," Thorn wrote.

Inflows From Middle East and Wealth Managers

While hedge funds exited, entities including Morgan Stanley’s wealth management arm, Mubadala, and the Abu Dhabi Investment Council accumulated exposure. Roughly 2,200 other filers added about 20,000 Bitcoin combined during the period. Since June, funds have added 87,000 Bitcoin through straightforward purchasing rather than arbitrage strategies.

Data from October shows net inflows recovering, with $724 million entering spot Bitcoin ETFs over an eight-session span to bring the month flat after earlier outflows.

Key facts

• Nine hedge funds and banks sold roughly 68,000 Bitcoin worth of ETF shares, valued at about $5.4 billion.
• Sellers included Millennium, Brevan Howard, Goldman Sachs, and D.E. Shaw.
• The annualized yield on the ETF arbitrage trade compressed from 7.9% to 4.8% by late October.
• Morgan Stanley's wealth management arm, Mubadala, and the Abu Dhabi Investment Council added to their holdings.