What to Know
- Hedge fund Bitcoin ETF holdings fell 28% in Q4 2025 as funds reduced risk after Bitcoin’s sharp price decline.
- Bitcoin has dropped nearly 50% from its $126,000 peak, with liquidations and weak market sentiment adding pressure.
- Long-term investors and advisers are still buying, signaling continued institutional interest.
Hedge funds that once helped drive massive inflows into Bitcoin ETFs are now rapidly reducing their exposure. According to Bloomberg, the total Bitcoin ETF holdings among the largest hedge funds dropped by 28% between the third and fourth quarters of 2025, signaling a major shift in market sentiment.
Hedge Funds Step Back
Bitcoin ETFs saw huge interest after they were approved in the United States. Large hedge funds were among the biggest buyers, helping push billions of dollars into these products. But that trend is now reversing.
Data compiled by CF Benchmarks shows hedge funds significantly reduced their Bitcoin ETF positions in late 2025. One major example is Brevan Howard, which cut its holdings in BlackRock’s iShares Bitcoin Trust by about 86%. Its position dropped from around $2.4 billion to just $275 million in value.
Gabe Selby, head of research at CF Benchmarks, said this was part of a broader risk reduction strategy. “The dominant theme over the last two quarters was hedge fund de-risking,” Selby wrote in a Feb. 19 research note. “The October blow-off top appears to have triggered systematic position reductions.”
Bitcoin Price Drops Nearly 50% From Peak
Bitcoin’s falling price has been a key reason behind the pullback. The cryptocurrency reached a high of more than $126,000 in October 2025. Since then, it has dropped nearly 50%, recently falling to around $64,300 in early Asian trading. In the past 24 hours alone, Bitcoin declined 2.7% to about $66,353.
The drop has been worsened by forced selling of leveraged positions. Over $231 million worth of Bitcoin positions were liquidated in just one day, increasing selling pressure. Global economic concerns have also played a role. Fresh worries about constantly changing US tariffs and broader market weakness have made investors more cautious.
Popular Hedge Fund Strategy
Another major reason hedge funds are pulling back is the reduced profits from a once-popular trading strategy involving Bitcoin ETFs. This strategy involved buying Bitcoin ETFs while taking an opposite position in Bitcoin futures. For months, this method offered steady profits, sometimes delivering double-digit yearly returns.
But as more hedge funds used the same approach, profits dropped significantly. By early February 2026, returns had fallen to around 4%, according to Amberdata. With lower returns, many hedge funds no longer see the strategy as worth the risk or effort.
Market Fear and Liquidations Add Pressure
Bitcoin’s recent decline has also been fueled by market fear and liquidations. The total crypto market has fallen alongside Bitcoin, with overall market value dropping more than 2%. Investor sentiment has turned negative, with fear levels rising sharply.
Bitcoin is now trading below key average price levels, which suggests weak momentum. Analysts are watching closely to see if it can hold above the $65,800 support level. If it falls below that, it could drop further toward $64,000. For now, leveraged traders are continuing to exit their positions.
Despite hedge funds pulling back, some long-term investors are still increasing their Bitcoin ETF holdings. The Emirate of Abu Dhabi increased its position in BlackRock’s Bitcoin ETF by 46% in the fourth quarter of 2025. Investment advisers also increased their holdings steadily, with total positions rising 145% over the past year. Selby noted that this shift could actually strengthen the market over time. “Speculative capital that powered the rally has retreated and in its place, a more durable ownership base has formed,” Selby wrote.
What’s Next?
While hedge funds helped fuel the initial boom, their exit shows how quickly institutional investors can change their positions when profits fall or risks increase.
At the same time, the entry of long-term investors suggests Bitcoin ETFs may still have a strong future, even if prices remain volatile in the short term.
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