Do Hedge Funds Influence Bitcoin’s Volatile Week? BlackRock’s iBonds ETF Faces…

Hedge funds’ involvement with BlackRock’s iShares Bitcoin Trust (IBIT) sparked interest following clarifications from Bitwise portfolio manager Jeff Park about options limits on IBIT over the weekend. Park mentioned that IBIT was still operating under a 250,000-contract position cap, despite reports suggesting a removal of these limits by Nasdaq. It was made clear that there had been no modification allowing unlimited leverage on the fund.

The Securities and Exchange Commission (SEC) filing that circulated online pertained to spot Bitcoin and Ethereum ETFs, seeking exemption from a 25,000-contract cap. Another proposal from November aimed to increase IBIT’s limit to one million contracts, though this had not yet received approval according to the Federal Register.

BlackRock’s iShares Bitcoin Trust (IBIT) finished trading at $39.66, experiencing a more than 9% increase on Friday. Retail sentiment surrounding IBIT on Stocktwits remained “extremely bullish,” with high activity and discussions in this regard.

The focus then shifted to hedge fund positions, particularly due to Brevan Howard being the largest institutional holder of IBIT, holding an estimated stake of $2.3 billion according to public filings. Notably, Bloomberg reported that Brevan Howard’s $1.4 billion Fixed Income fund would cease accepting external capital by the end of June, garnering significant market attention amid heightened ETF trading.

Previously, Arthur Hayes of BitMex suggested that banks were using the IBIT ETF to hedge positions, explaining the sell-off in Bitcoin. He mentioned Morgan Stanley’s “structured note,” a bank speculation on Bitcoin that forced banks to sell once Bitcoin’s price dropped. The need to sell was exacerbated on Thursday as highly leveraged IBIT ETF positions unwound, resulting in record trading and options volume. IBIT experienced net outflows of approximately $175 million that day, while spot Bitcoin ETFs saw net outflows exceeding $430 million.

Hayes revealed plans to compile data on outstanding IBIT-linked structured notes to create an internal volatility surface for trading. The team intends to identify strategic trigger points and adjust positions accordingly, with full transparency on disclosed trades post-execution. Any significant institutional repositioning would only become apparent through quarterly disclosures, as U.S. hedge funds must report ETF holdings through Form 13F filings within 45 days of each quarter’s end per SEC regulations.