Nine Hedge Funds Dumped 68,000 BTC in ETFs as Sovereign Funds Bought
Galaxy Research's Alex Thorn shows the 2026 Bitcoin bear market was structurally driven by arbitrage unwinding, not conviction selling, as sovereign wealth entered from the other side.
Galaxy Research shows the 2026 Bitcoin bear was an arbitrage unwind, not a conviction exit, as Gulf sovereign wealth stepped in from the other side.
Key takeaways
- Nine hedge funds including Millennium Management, Goldman Sachs, and Tudor Investment Corp cut a combined 68,000 BTC in spot Bitcoin ETF exposure from September 2025 to June 2026 as the cash-and-carry trade compressed to roughly 1.5 percentage points over cash after costs.
- The selloff was mechanical, not ideological: ETF holdings fell only 11% from peak to trough while Bitcoin's price dropped 53%, and U.S. spot ETFs have added 87,000 BTC since the June low.
- Abu Dhabi's Mubadala and the Abu Dhabi Investment Council were among confirmed buyers across the same window, marking a clear entry of Gulf sovereign capital into Bitcoin ETFs as strategic allocators.
Nine hedge funds and banks cut a combined 68,000 BTC worth of spot Bitcoin ETF holdings between September 2025 and June 2026, according to a Galaxy Research report published October 26 by Alex Thorn, Head of Firmwide Research at Galaxy Digital. The exits were not conviction selling. They were the mechanical unwinding of a cash-and-carry arbitrage that had run out of road, and sovereign wealth funds filled the other side of the trade.
The report, first distributed to Galaxy Trading and Galaxy Asset Management clients on October 22 and made public around October 26, draws on 13F filings across roughly 2,200 reporting institutions. Thorn's research is indexed at alexthorn.com/research; the full report was first published to Galaxy clients October 22 and made public October 26, and the accessible public version is Thorn's X thread at x.com/intangiblecoins/status/2114730275242426648.
The Arithmetic of Who Actually Left
The nine sellers, Millennium Management, Brevan Howard, Goldman Sachs, Capula Management, Farallon Capital, D.E. Shaw, Schonfeld Strategic Advisors, Symmetry Investments, and Tudor Investment Corp, cut their ETF positions by between 29% and 100% over the period. The combined reduction: 68,000 BTC, worth approximately $5.5 billion at current prices.
Here is the number the headline figure obscures. All 2,200-plus 13F filers together declined by only 48,000 BTC across the same window, from 355,000 BTC to 307,000 BTC, a 14% drop. The nine funds cut more than the total decline. Every other reporting institution added, in aggregate, roughly 20,000 BTC (approximately $1.6 billion). Morgan Stanley's wealth management arm, Mubadala, and the Abu Dhabi Investment Council were among the identified buyers.
Meanwhile, advisers, family offices, and individuals not required to file 13Fs cut their holdings by just 6.6% while Bitcoin's price fell 49%. The hands that held weren't the trading desks.
Why the Carry Trade Died
The nine funds were not running Bitcoin theses. They were running a spread. The cash-and-carry trade buys spot ETF shares and shorts CME Bitcoin futures, capturing the basis, the premium futures carry over spot. Through most of 2024 and early 2025 that basis was wide enough to generate meaningful returns. It isn't anymore.
In the 30 days to October 21, the annualized basis averaged 4.8%, just 0.6 percentage points above Treasury bills. After fees, rolling costs, and margin, Galaxy estimates the net return at roughly 1.5 points over cash. That is not a trade worth running for a multi-strategy fund with better options on the board.
The futures data confirms the unwind. Leveraged funds' net short on CME (the hedging leg of carry positions) shrank from 71,400 BTC to 30,600 BTC. CME Bitcoin open interest is down 28% in BTC terms and 51% in dollar terms. This is the carry trade exiting in an orderly, sequential fashion, not panic selling.
The French OAT carry trade collapse that hit London hedge funds earlier this year showed what a forced unwind looks like. The Bitcoin basis unwind was cleaner precisely because the spot ETF structure made the exit liquid and gradual.
The Capital Stack Just Cleared a New Level
ETF holdings fell only 11% from peak to trough while Bitcoin's price dropped 53%. Since the June low, U.S. spot ETFs have added 87,000 BTC in what Galaxy characterizes as directional demand, not leveraged positioning.
Thorn's conclusion from the report and accompanying X thread:
"We believe the bottom is in, selling pressure has diminished, the debasement case has strengthened, and the crowd has left."
The macro context running alongside this positioning shift is not subtle. U.S. federal debt reached $40.44 trillion as of October 20. The FY2026 budget deficit is near $1.99 trillion. The 10-year Treasury yield hit 5.31% on October 5. The fiat debasement argument that Bitcoiners have been making for years is now in the Galaxy Research deck being pitched to sovereign wealth funds.
That last point matters for how to read Mubadala and ADIC's entry. Sovereign wealth funds operate on multi-decade mandates. They do not run 30-day basis books. Their appearance in the 13F buyer list signals that Bitcoin cleared an institutional due-diligence threshold it had not cleared before, at the nation-state capital level.
The falsifiable version of this thesis: if Q3 2026 13F filings (due in coming weeks) show sovereign wealth and wealth management platforms reducing ETF exposure materially, or if the 87,000 BTC added since June proves to be a new round of carry positioning rather than directional buying (i.e., CME leveraged shorts rebuild in lockstep with ETF inflows), the "patient capital replacing hot money" read breaks down.
What to Watch
The next 13F filing window will be the first real test. If leveraged CME shorts stay compressed while ETF inflows continue, the directional-demand interpretation holds. If the shorts rebuild alongside inflows, the carry trade is back and the composition question reopens. Watch the CME commitment-of-traders data weekly, not the ETF flow headline.
Sources
Frequently Asked Questions
What is the cash-and-carry trade in Bitcoin ETFs and why did it stop working?
The cash-and-carry trade involves buying spot Bitcoin ETF shares and simultaneously shorting CME Bitcoin futures, capturing the basis, the price premium futures carry over spot. When the annualized basis was wide enough to generate strong risk-adjusted returns, the trade attracted significant capital. As the futures market matured and more capital crowded the strategy, the basis compressed. By late October 2026, the annualized basis averaged 4.8%, only 0.6 percentage points above T-bills. After fees and rolling costs, Galaxy estimates net returns of roughly 1.5 points over cash, too thin to justify the position for multi-strategy funds with alternatives.
What are 13F filings and how do they reveal who holds Bitcoin ETFs?
Form 13F is a quarterly SEC disclosure required of institutional investment managers with over $100 million in qualifying assets. It lists equity and equity-equivalent holdings, including spot Bitcoin ETF shares, as of each quarter end. The filings create a public, delayed snapshot of institutional positioning. Galaxy Research aggregated 13F data across roughly 2,200 filing institutions to track net changes in spot Bitcoin ETF exposure from September 2025 through June 2026. Individual investors, family offices below the threshold, and non-U.S. entities typically do not file, so 13Fs capture the institutional layer but not the full holder picture.
Which sovereign wealth funds have bought Bitcoin ETFs?
Galaxy Research's analysis of 13F filings identified Abu Dhabi's Mubadala and the Abu Dhabi Investment Council among the buyers in the September 2025 to June 2026 window. Morgan Stanley's wealth management platform was also identified as a net buyer. The full universe of sovereign and quasi-sovereign buyers is still emerging as Q3 2026 filings come in over the next several weeks.
