Institutions Cut Bitcoin ETFs in Q1, Rebound in Q2
Key Takeaways
- Institutional investors significantly reduced their Bitcoin ETF holdings in the first quarter of 2025.
- BlackRock’s iShares Bitcoin Trust (IBIT) saw a 15.6% decline in average portfolio allocation.
- Some funds, such as Millennium Management and Brevan Howard, sharply cut their BTC positions.
- The decline is linked to the decreasing appeal of the so-called basis trade.
- Despite this, inflows into spot Bitcoin ETFs increased again in April and May.
Decline in Institutional Bitcoin Investments
In the first quarter of 2025, several hedge funds significantly reduced their investments in Bitcoin ETFs (Exchange Traded Funds). The most affected was BlackRock’s iShares Bitcoin Trust (IBIT). According to recent data, the average allocation in IBIT dropped by 15.6%. Notably, the U.S. state of Wisconsin fully exited its IBIT position, liquidating holdings worth USD 321 million.
Significant Cuts by Major Funds
Millennium Management LLC reduced its IBIT holdings by 41% to 17.6 million shares and simultaneously closed its position in the Invesco Galaxy Bitcoin ETF (BTCO). Instead, smaller positions were built in other products such as Ark 21Shares and Grayscale Mini. Brevan Howard also reduced its IBIT allocation by 15.6%.
Market Conditions Weigh on Investment Appetite
The funds’ cautious approach must be seen in light of a challenging market environment. In the first quarter of 2025, the price of Bitcoin fell by around 12%, from USD 109,000 to USD 76,000. In addition to geopolitical tensions such as trade disputes, the decline in the so-called basis trade also played a role.
What Is the Basis Trade?
The basis trade refers to the strategy of buying a spot Bitcoin ETF while simultaneously selling Bitcoin futures on the CME (Chicago Mercantile Exchange). The difference between the two prices – known as the premium – was long considered attractive. At the end of 2024, the annualized return stood at 15 to 20%. However, in March 2025, the premium fell below 4%, significantly reducing the appeal of this strategy.
Recovery in the Second Quarter
In the second quarter of 2025, the premium rose again to around 9%, and currently sits at about 8%. At the same time, spot Bitcoin ETFs began seeing inflows again. In April alone and the first half of May, approximately USD 5.2 billion flowed into these products. This helped Bitcoin’s price climb back above the USD 100,000 mark.
Possible Shift in Sentiment
CryptoQuant’s so-called Bull Score Index, an indicator of market sentiment, recently stood at 80 – a level suggesting a bullish market. If demand for spot Bitcoin ETFs remains strong, the BTC price could continue to rise. On the other hand, a decline in inflows may signal a local peak.
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Our Assessment
The reduction in Bitcoin ETF allocations by institutional investors in the first quarter of 2025 was a response to a difficult market environment and the collapse of the basis trade. Nevertheless, the second quarter shows signs of recovery. The return of inflows into spot Bitcoin ETFs points to renewed interest. As an investor, it is important to monitor the development of the basis trade and ETF inflows. These provide insight into how actively institutional players are currently involved in the market – and which direction the Bitcoin price could take in the medium term.
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