Institutions Shed Bitcoin Holdings as Arbitrage Opportunity Fades
Major financial institutions, including hedge funds and banks, have significantly reduced their holdings of Bitcoin-related exchange-traded funds (ETFs) over the past nine months, a period spanning from just before Bitcoin’s October 2025 peak through the end of June. Filings with the Securities and Exchange Commission (SEC) reveal that these entities collectively sold approximately 68,000 Bitcoin worth of ETF shares, a move valued at roughly $5.4 billion at current prices.
Among the prominent sellers were Millennium, Brevan Howard, Goldman Sachs, and D.E. Shaw, with some trimming their positions by as much as a third, and others liquidating their entire holdings.
The Arbitrage Play Loses Its Appeal
This strategic divestment was not driven by a lack of faith in Bitcoin’s long-term prospects, but rather by the diminishing profitability of a specific arbitrage strategy. This trade involved simultaneously buying Bitcoin ETFs and betting against Bitcoin in the futures market. The profit was derived from the price differential between these two instruments. When executed effectively, this strategy offered returns regardless of Bitcoin’s price movement, provided the gap exceeded the yield from simply holding Treasury bills.
Prior to Bitcoin’s October high, this arbitrage opportunity yielded an annual return of 7.9%, a substantial 3.9 percentage points above T-bills. By late October, however, this yield had fallen to 4.8%, barely half a percentage point better than risk-free assets. After accounting for fees and financing costs, analysts estimate the net return to be around 1.5 percentage points above cash. This marginal gain was deemed insufficient to justify the effort and risk involved.
“That arithmetic, not the price, is why the multi-strategy desks left,” noted Alex Thorn of Galaxy.
The shift in institutional sentiment is also evident in futures market data, which shows a nearly identical contraction of around 57% on both sides of this arbitrage trade.
A New Wave of Investors Emerges
In contrast to the selling pressure from traditional institutions, new investors have stepped in to acquire Bitcoin. Morgan Stanley’s wealth management division, Mubadala, and the Abu Dhabi Investment Council are among those who have increased their exposure. Approximately 2,200 other filers collectively added about 20,000 Bitcoin. This trend indicates a transition from hedge funds selling to sovereign wealth funds and wealth managers buying.
Furthermore, smaller investors, including advisors, family offices, and individual retail investors, who are not required to file with the SEC, demonstrated resilience. Their holdings decreased by only 6.6% during a period when Bitcoin’s price fell by 49%, suggesting a strong “holding” sentiment among this segment of the market.
A Foundation for Future Growth
The departure of short-term, arbitrage-focused players has left behind a more committed base of investors. Since June, these remaining investors have added approximately 87,000 Bitcoin to their portfolios, this time through direct purchasing rather than arbitrage.
The broader macroeconomic environment is also showing signs of a favorable shift. While the Federal Reserve maintained its interest rate on Wednesday, market expectations for future tightening have softened considerably. Traders who previously anticipated two rate hikes by year-end now see zero probability, and the overall expected tightening has been roughly halved. A less restrictive monetary policy environment generally benefits risk assets.
October’s investment flows already reflect this changing landscape. After a mid-month decline of $907 million, the month has stabilized, with $724 million flowing into Bitcoin ETFs in the last eight sessions alone.
The departure of speculative capital and the steadfastness of long-term believers are creating a solid foundation for a potential bull market rally.
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