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Institutional appetite for Bitcoin appears to have cooled off in the first quarter of 2025, raising concerns about long-term confidence in the flagship cryptocurrency’s investment products. Several prominent hedge funds significantly cut back on their holdings in Bitcoin exchange-traded funds (ETFs), a move that has fueled speculation about whether demand for spot Bitcoin exposure is starting to wane.
One of the most surprising developments came from the State of Wisconsin, which fully exited its position in the BlackRock iShares Bitcoin ETF (IBIT). The withdrawal, worth roughly $321 million, was disclosed in the latest 13-F filings submitted to the U.S. Securities and Exchange Commission. This complete liquidation sent a clear signal that even institutional investors once seen as long-term backers are reassessing their exposure to digital assets.
According to data compiled by Fintel, the average portfolio allocation in IBIT among institutional holders dropped by 15.6% during the first quarter. This trend wasn’t limited to a single fund. Millennium Management, one of the world’s largest hedge funds, reduced its IBIT holdings by 41%, trimming its position to 17.6 million shares. The fund also closed its exposure to the Invesco Galaxy Bitcoin ETF (BTCO). However, it did redirect some capital into other crypto-linked ETFs, including those offered by Ark 21Shares and the Grayscale Bitcoin Mini Trust.
Brevan Howard, another major institutional player, also scaled back its IBIT exposure by 15.6%. These strategic rebalancings occurred amid significant macroeconomic headwinds, including ongoing global tariff tensions that unsettled markets throughout the quarter. Adding to that pressure, Bitcoin itself declined by about 12% during Q1, falling from highs around $109,000 to lows near $76,000.
Industry experts believe this institutional pullback may be tied to a shift in the once-lucrative basis trade. This strategy, popular among hedge funds, involves buying spot Bitcoin ETFs and simultaneously shorting Bitcoin futures on the Chicago Mercantile Exchange (CME) to profit from price discrepancies. In late 2024, this trade delivered impressive returns, with premiums reaching up to 20% on an annualized basis.
But as Q1 2025 progressed, that premium collapsed. According to Bitwise Chief Investment Officer Matt Hougan, the basis trade reached its lowest point in March, dropping below 4%. Speaking to Reuters, Hougan said the diminishing returns from this trade likely contributed to funds trimming their ETF holdings, as the appeal of the arbitrage diminished.
Although the premium has since recovered—rising to around 9% at the start of Q2 before slipping just below 8%—the changing dynamic suggests that institutional strategies are evolving rapidly. When the basis trade becomes less attractive, funds tend to reallocate capital elsewhere, which can reduce demand for Bitcoin ETFs.
This shift in sentiment was also reflected in spot Bitcoin ETF flows. February and March saw over $4 billion in outflows across several major products, underscoring the cooling institutional interest. However, April brought a notable rebound. In just a month and a half, these ETFs experienced $5.2 billion in net inflows, coinciding with Bitcoin’s return above $100,000 for the first time since February.
As of now, Bitcoin is trading around $103,000. According to CryptoQuant’s Bull Score Index—which tracks market momentum—the asset currently holds a reading of 80, a level that typically indicates bullish sentiment similar to conditions seen before major upward rallies, such as the one that occurred in November last year.
Still, the path forward for Bitcoin may depend heavily on whether institutional demand continues to recover. If U.S. spot Bitcoin ETFs keep attracting fresh capital, the cryptocurrency could see further gains. On the other hand, any renewed slowdown in ETF flows could suggest that the market is nearing a local top.
While the long-term fundamentals of Bitcoin remain intact in the eyes of many analysts, the recent dip in ETF allocations is a reminder that institutional support is not guaranteed—and can shift quickly based on market dynamics and short-term profitability.
