Why Hedge Funds Cut Their Bitcoin ETF Holdings: The Basis Trade Stopped Paying Off

Why Hedge Funds Cut Their Bitcoin ETF Holdings: The Basis Trade Stopped Paying Off

According to Galaxy Research, nine large funds cut their positions in spot bitcoin ETFs by 68,000 BTC. This covers the period between late 2025 and mid-2026.

It sounds alarming. But Galaxy links it not to disappointment in bitcoin, but to the basis trade yield compressing to roughly 4.8% a year.

What the basis trade is, in plain terms

Bitcoin futures on CME usually trade above spot. The difference between them is called the basis.

A fund buys the ETF and simultaneously sells CME futures for the same amount. Where the price goes no longer matters to it: at expiry the futures and spot converge, and the fund pockets the difference.

A hypothetical example

The numbers below are hypothetical. Say bitcoin trades at 80,000 dollars, and a futures contract expiring in three months trades at 81,200.

The ETF fee, margin costs and the cost of money are still deducted from this yield.

Why funds are unwinding the trade

If a trade with margin, contract rollovers and operational risks yields about 4.8% a year, it struggles to compete with simpler dollar instruments. In our view, funds are simply moving capital to where the return per unit of risk is higher.

When unwinding the trade, a fund sells the ETF and buys back the short futures. In the statistics this looks like an outflow, even though there is no directional bet against bitcoin.

What this says about market maturity

Basis compression is a sign of a maturing market. When a lot of capital piles into the trade, the gap evens out and the easy yield disappears.

From what we see, the basis is wide where there are few large players with cheap money. The arrival of funds through ETFs has eaten that gap.

Where the basis is still wider

• altcoins: their futures and perps often trade at a more noticeable gap to spot
• offshore perpetual futures: instead of basis there is funding, and during overheated periods it can be higher
• the gap between exchanges on the same coin: prices diverge, especially during sharp moves

These trades come at their own price: liquidity is lower, and funding can quickly change sign.

We believe an arbitrage trader should look at the basis as a rate the market pays for taking risk. A narrow CME basis does not mean there are no opportunities - they have simply moved to where things are harder.

Our tools

Basis and funding on altcoins vary a lot from exchange to exchange, so trades are easier to compare when every venue is visible at once. Our arbitrage screener keeps dozens of venues in one window, refreshes quotes every second and shows each gap together with the volume actually behind it. The spread calculator helps you check what survives fees, network costs and slippage at your size. The bot is fully manual. It never connects to your exchange API keys.

To test the tools on a live market, ArbitrageScanner offers one day of free access to the whole ecosystem.

FAQ (Frequently Asked Questions)

1. Why are hedge funds selling bitcoin ETFs?

According to Galaxy Research, nine large funds cut their positions by 68,000 BTC mainly because the basis trade yield compressed to roughly 4.8% a year.

2. What is the bitcoin basis trade?

It means buying a spot ETF and simultaneously selling CME futures for the same amount. The fund does not depend on the price and pockets the difference between futures and spot.

3. Do ETF outflows mean funds are leaving bitcoin?

Not necessarily. When unwinding a basis trade, a fund sells the ETF and buys back the short futures, so there is no directional bet against bitcoin.

4. Where is the basis wider than on CME today?

Usually on altcoins and offshore perps, where funding takes the place of basis. The risks are higher there too: liquidity is lower, and the rate can quickly change sign.

Conclusion

Nine large funds cut their bitcoin ETF holdings by 68,000 BTC, and Galaxy Research attributes this to the basis trade yield compressing to roughly 4.8% a year. This is an arbitrage trade being unwound, not an exit from bitcoin.

A narrow CME basis is a sign of a mature market. Opportunities have shifted to altcoins, offshore perps and cross-exchange spreads, where both the yield and the demands on risk control are higher.

IMPORTANT! We are software developers. We do not give recommendations or promises of earnings and we do not advise you to invest your money anywhere. Our software is fully manual, all your money stays under your own control. We show examples of how our clients have earned on arbitrage in the past, but we do not advise repeating those actions one to one. Your earnings depend solely on your own actions and on market factors.