Hedge Funds Increase US Bitcoin Positions Amid Market Volatility

Hedge funds have increased their exposure to US spot Bitcoin exchange-traded funds (ETFs) during the fourth quarter of 2025. This shows strong conviction despite a severe market drawdown.

According to data from the UK FCA regulated benchmark administrator, CF Benchmarks, while the aggregate dollar value of these holdings declined by 28% to end the year, this drop was significantly shallower than Bitcoin’s nearly 50% price correction from its October peak of over $126,000, suggesting net share accumulation.

The 28% decline in aggregate allocation value occurred amid a period when Bitcoin’s volatility and price dropped sharply, plummeting nearly 50% from the October 2025 high.

Had hedge funds sold off proportionally to the price drop to exit the market completely, the value decline would have likely exceeded the asset’s spot price fall. Instead, the mathematical variance implies that funds were net buyers of ETF shares, effectively buying into the weakness to lower their cost basis.

This behavior contradicts fears of a mass exodus. While headlines often focus on weakening institutional interest during red weeks, the quarterly reporting cycles reveal a steadier hand among professional managers who are bound by mandates to manage risk rather than flee risk assets entirely.

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Institutional Resilience in a Down Market

Gabe Selby, head of research at CF Benchmarks, wrote in a February 19 research note that “the dominant theme over the last two quarters was hedge fund de-risking.” However, the mechanics of the portfolio adjustments tell a deeper story about conviction.

The discrepancy between the asset’s price performance and institutional holding values highlights a sophisticated approach to the recent crypto winter. As Bitcoin retraced from its record highs, professional investors appeared to utilize the volatility to average into positions rather than capitulate. This aligns with broader market movements where major players have continued to allocate capital to the asset class. For instance, reports indicate that quantities of institutional capital have moved defensively, yet firms like Jane Street recently boosted Bitcoin exposure via IBIT, signaling that smart money remains active.

The resilience of these funds mirrors similar activity in the sovereign wealth sector, where Abu Dhabi government funds purchased Bitcoin, further reinforcing the asset’s status as a macro hedge despite short-term headwinds. While the broader retail market reacted to volatility with caution, the behavior of sophisticated funds suggests a divergence in strategy, viewing the 50% drawdown as a liquidity event suitable for accumulation.

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Market Looks For Potential Regulatory Clarity

Recent on-chain and ETF flow analysis suggests that Bitcoin ETF holders have ‘diamond hands’, refusing to liquidate significant portions of their portfolios during the correction. For hedge funds, maintaining and increasing position sizes suggests a long-term view that looks past the Q4 2025 volatility.

As the market looks toward potential regulatory clarity from the new US administration’s digital assets working group, this quiet accumulation by hedge funds could provide the supply shock needed to stabilize prices. If smart money continues to absorb supply during periods of distress, the floor for Bitcoin prices may be higher than retail sentiment indicators currently suggest.

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