Hedge funds cut Bitcoin ETF stakes as sovereign wealth bought, Decrypt analysis says
In brief
- Nine hedge funds and banks sold about 68,000 BTC of ETF shares, per Warner's reading of SEC filings
- Millennium, Brevan Howard, Goldman Sachs and D.E. Shaw were among the firms leading the selling
- Mubadala, the Abu Dhabi Investment Council and Morgan Stanley's wealth arm were named as buyers
- Basis trade yield fell from 7.9% to 4.8%, according to Galaxy's Alex Thorn
- October ETF flows went from down $907 million at midmonth to roughly flat through Tuesday
Who sold, who bought
Morning Minute is an opinion newsletter, and Decrypt notes the analysis is Warner's own (it doesn't necessarily reflect the outlet's views). His numbers come from quarterly filings, the disclosures big institutions have to send the SEC listing what they own.
By his count, Millennium, Brevan Howard, Goldman Sachs, D.E. Shaw and five other firms led the selling. Some cut their positions by a third. Some sold everything.
The buyers he names are Morgan Stanley's wealth management arm, Mubadala and the Abu Dhabi Investment Council. Roughly 2,200 other filers added about 20,000 BTC between them. Investors too small to file at all (advisers, family offices, regular people) cut their holdings by just 6.6% while the Bitcoin price fell 49%, Warner wrote.
The basis trade stopped paying
Warner treats the hedge fund exit as an unwind of the basis trade. You buy the ETF, short Bitcoin in the futures market at the same time, and pocket the gap between the two. Citing Galaxy's Alex Thorn, the newsletter says that gap paid 7.9% a year before the high, 3.9 points better than T-bills, and only 4.8% by late October (about half a point better). After fees and financing, Thorn figures what's left is about 1.5 points over cash.
“That arithmetic, not the price, is why the multi-strategy desks left,” he wrote.
Warner says futures data backs this up. Both legs of the trade shrank by nearly identical amounts, around 57% each.
His summary is blunt: hedge funds sold, and sovereign funds and wealth managers bought.
Flows and the Fed
Since June, Warner wrote, the funds have added back 87,000 BTC, this time as straightforward buying rather than arbitrage. October's flows have turned too. Bitcoin ETFs were down $907 million at the month's midpoint, and through Tuesday they were essentially flat, with $724 million arriving in the last eight sessions, according to Decrypt.
The rate picture has moved as well. The Fed held on Wednesday. Warner wrote that a month ago traders put 59% odds on two rate hikes by year-end, and those odds are now zero. In his view, expected tightening has been cut roughly in half.
Frequently asked questions
What is the Bitcoin ETF basis trade?
In Tyler Warner's description, it means buying a Bitcoin ETF while shorting Bitcoin in the futures market at the same time. The trader keeps the price gap between the two legs instead of betting on which way Bitcoin goes.
Why did hedge funds sell Bitcoin ETF shares, according to the analysis?
The newsletter, citing Galaxy's Alex Thorn, says the basis trade's yield fell from 7.9% a year before Bitcoin's high to 4.8% by late October. Thorn estimates about 1.5 points over cash is left after fees and financing. Futures data showed both legs of the trade shrinking by around 57%.
Who bought Bitcoin ETF shares while hedge funds sold?
Warner names Morgan Stanley's wealth management arm, Mubadala and the Abu Dhabi Investment Council. He says roughly 2,200 other filers added about 20,000 BTC between them.
