Hedge Funds Cut Bitcoin ETF Holdings by 41% Amid Price Drop

In the first quarter of 2025, several hedge funds significantly reduced their Bitcoin ETF positions, indicating a cautious market outlook. Millennium Management LLC, for instance, cut its holdings in BlackRock’s IBIT by 41% and exited the Invesco Galaxy Bitcoin ETF entirely. This reallocation coincided with a significant drop in Bitcoin prices, from approximately $109,000 to $76,000 during the quarter. The reduction in basis trade, a strategy where investors profit from discrepancies between spot prices and futures, played a crucial role in these decisions. According to Bitwise CIO, the annualized returns from this strategy, which were around 15%-20% at the end of 2024, plummeted to below 4% in March 2025, causing institutional investors to adopt a more cautious stance.

The narrowing of the basis trade may have contributed to the reduced demand for Bitcoin-related instruments, which saw over $4 billion in outflows during February and March. Despite a surge in investor interest in April, the overall market sentiment remained fragile due to earlier losses. However, from April to mid-May, there was a turnaround in ETF inflows, totaling $5.2 billion, as optimism returned to the market. This renewed activity pushed Bitcoin prices above $100,000 for the first time since February 2025, indicating a shift in investor sentiment.

While the recent influx into U.S. spot Bitcoin ETFs suggests stronger market confidence, any subsequent dips in demand could signal a localized peak for Bitcoin. As of now, Bitcoin is trading around $103,000, marking a significant recovery from earlier lows. The CryptoQuant Bull Score Index, with a reading of 80, indicates a bullish sentiment comparable to previous market upswings. However, the market's trajectory remains uncertain as it navigates evolving ETF strategies and changing demand dynamics. The interplay between ETF inflows, hedge fund reallocations, and the ongoing basis trade situation will be critical in shaping future market movements. Investors should closely monitor these trends, as they could provide valuable insights into Bitcoin’s next phase of market performance.