Hedge Funds Pull Back from Bitcoin ETFs — Quick Read

Hedge funds that were sizable holders of US-listed Bitcoin ETFs cut their portfolio weight sharply late in 2025, according to a benchmark dataset maintained by CF Benchmarks (a Kraken unit). The most striking figure: an approximately 28% decline in aggregate allocations among the largest hedge fund holders between the third and fourth quarters of 2025. That reduction in large-holder sizing has coincided with a broader flow deterioration: independent estimates put cumulative net redemptions from U.S. spot crypto ETFs at roughly $6.18 billion over the measured period. Compounding pressure during a late‑January risk‑off episode, same‑day withdrawals ran into the high hundreds of millions — about $818 million from BTC ETFs and roughly $156 million from ETH products — converting paper losses into actual sales of underlying coins. Those unrealized losses matter: average ETF cost-basis estimates sit near $90,200 versus market quotes nearer $76,800, implying roughly a 15% paper loss that raises redemption vulnerability among shorter‑horizon holders. Market‑makers and desks reported diminished block‑size interest and thinner institutional‑sized bids, while visible on‑exchange depth evaporated once previously supportive pivot bands broke. The plumbing that used to cushion drawdowns has also weakened — combined major dollar‑pegged stablecoins have contracted to about $258 billion, reducing a ready dollar buffer for fast dip‑buying. In response to acute liquidation threats, several ecosystem participants staged tactical interventions (one exchange publicly converted stablecoin reserves into BTC and pledged to top up a user‑protection fund to a $1 billion target), actions that helped blunt immediate tail risk but are not substitutes for steady, institutional demand. Portfolio teams cited risk‑management, liquidity engineering and custody mechanics as reasons to redeploy into cash, marginable futures and OTC blocks rather than holding large spot‑ETF positions, a rotation that redistributes execution risk across venues. The net effect: ETF flow profiles have shifted, with weaker persistent support from large allocators, wider intraday bid‑ask spreads during stress, and greater reliance on retail and specialist liquidity to carry price discovery. Expect managers to rework sizing rules and liquidity buffers through the first half of 2026; absent renewed durable inflows, the market remains more susceptible to episodic, amplified selloffs.