Sovereign Wealth Inflows Replace Hedge Fund Selling in BTC ETF Trade

A significant shift in market sentiment is evident, as the BTC ETFs have turned positive for the month following inflows exceeding $400 million this week, setting up what could be a substantial November.

A review of filings from just before Bitcoin's October 2025 peak through the close of June reveals a clear pattern: nine distinct hedge funds and banks offloaded approximately 68,000 Bitcoin equivalent in ETF shares across those nine months, amounting to about $5.4 billion at current valuations.

Entities such as Millennium, Brevan Howard, Goldman Sachs, and D.E. Shaw spearheaded this selling; some participants reduced their positions by a third, while others liquidated their holdings entirely. The motivation behind this trading, it turns out, was not a divergence in belief regarding Bitcoin itself. Instead, the strategy involved simultaneously purchasing the ETF while betting against Bitcoin in the futures market, thereby capturing the difference between the two prices. When executed correctly, this strategy yields profit whether Bitcoin ascends or declines, provided the price gap surpasses the returns one could achieve by simply holding cash in Treasury bills. Initially, before the peak, this gap generated a 7.9% annual return, which was a full 3.9 percentage points superior to T-bills; however, by late October, that return had dropped to 4.8%, barely half a point better. After accounting for financing and fees, Galaxy’s Alex Thorn calculated that the net gain was only about 1.5 points over cash, concluding, “That arithmetic, not the price, is why the multi-strategy desks left.”

This dynamic is also visible in the futures market data, where both sides of that trade diminished by nearly the same amount, roughly 57% apiece. Conversely, a new wave of buyers has appeared, notably Morgan Stanley’s wealth management division, Mubadala, and the Abu Dhabi Investment Council. Furthermore, around 2,200 other filers collectively added approximately 20,000 Bitcoin.

The narrative shows a clear substitution: hedge funds were selling while sovereign funds and wealth managers were acquiring. Meanwhile, investors who were too small to file regulatory paperwork—including family offices, advisors, and individual persons—decreased their holdings by only 6.6% even as the price declined by 49%, suggesting that "Middle America is hodling," which encapsulates the core story. The individuals who were never truly Bitcoin investors departed, but those who remained showed no hesitation.

Since June, these funds have reintroduced 87,000 Bitcoin, this time through direct purchasing rather than arbitrage. The interest rate outlook is also undergoing a change. Although the Fed maintained its stance on Wednesday, December's outlook has softened considerably; just a month ago, traders assigned a 59% probability to two rate hikes before the year’s end, whereas that probability is now zero, effectively halving expectations for monetary tightening. Less tightening generally benefits all risk assets.

October’s trading volumes already reflect this pivot; the month concluded down by $907 million at its midpoint. As of Tuesday, however, the total is nearly flat, with $724 million flowing in during the last eight sessions alone. The speculative, rapid capital has withdrawn, leaving behind the genuine believers, which forms a solid base upon which a bull market resurgence can be constructed.

Why it matters

The shift from hedge fund arbitrage selling to direct buying by sovereign wealth suggests a fundamental change in institutional sentiment. This move away from short-term trading towards long-term accumulation could signal a stronger foundation for future market rallies.