Osprey sues Grayscale for misrepresenting likelihood of GBTC ETF approval

Osprey alleges its only competitor on the BTC OTC trust asset market gained its 99.5% market share by misrepresenting the likelihood of its trust becoming an ETF.

Digital asset manager Osprey Funds filed suit against Grayscale Investments in Connecticut Superior Court on Jan. 30, alleging violation of the state’s Unfair Trade Practices Act. The suit concerns Grayscale advertising and promotion of the Bitcoin (BTC) exchange-traded fund (ETF) it is seeking to create. 

Osprey stated in the suit that it is the only competitor to Grayscale on the over-the-counter traded Bitcoin trust asset management market, and Grayscale maintained its leading position through deceit:

“Only because of its false and misleading advertising and promotion has Grayscale been able to maintain to date approximately 99.5% market share in a two-participant market despite charging more than four times the asset management fee that Osprey charges for its services.”

Specifically, Osprey alleged that Grayscale promoted participation in its Grayscale Bitcoin Trust (GBTC) as a means of accessing a spot-based Bitcoin ETF through the conversion of its $12-billion GBTC. Grayscale presented the conversion as “a foregone conclusion, when it knew that access was never likely to happen,” according to the suit.

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Osprey alleged that Grayscale continued to call the conversion “‘likely,’ despite knowing that such a description was false, as the SEC had consistently rejected the possibility of such conversion for a Bitcoin commodity fund since in or before late 2020.” Osprey claimed that statements in emails, press releases and Twitter, as well as Grayscale executives’ television appearances, contained the false information.

Dear @BarrySilbert, I have an idea for $GBTC. Give me a buzz when you’re ready. We’re just up the road from you in Connecticut. pic.twitter.com/zVFHBLxSl0

— Greg King, CFA (@GregKingOsprey) January 13, 2023

The United States Securities and Exchange Commission officially denied Grayscale’s application to convert its GBTC into an ETF on June 29, 2022. Grayscale filed a petition for review in the District of Columbia Court of Appeals the same day. The court is expected to hear oral arguments in the case on March 7.

Grayscale is part of Digital Currency Group, which also owns Genesis Global Capital, the crypto lender that declared bankruptcy on Jan. 19. Osprey has also seen hard times recently. It has reportedly laid off 15 staff members since last summer, leaving it with a staff of less than 10. Osprey is seeking an award for damages from Grayscale and injunctive relief.