Osprey, Grayscale Settle Two-Year Bitcoin ETF Lawsuit

Asset managers Osprey Funds and Grayscale Investments have agreed to settle a lawsuit that has been ongoing for two years. The dispute centered around allegations of violations of Connecticut law in the advertising and promotion of Grayscale’s Bitcoin exchange-traded fund (ETF). According to a court filing on April 9, the parties have agreed to settle the case and are in the process of finalizing the documentation and settlement terms. Once these steps are completed, Osprey will withdraw its appeal.

The legal battle began on January 30, 2023, when Osprey filed a suit in the Connecticut Superior Court. Osprey claimed that Grayscale, as its only competitor in the over-the-counter Bitcoin (BTC) trust market, had maintained its market share through deceitful practices. Specifically, Osprey alleged that Grayscale promoted its Grayscale Bitcoin Trust (GBTC) as a means to access a spot Bitcoin ETF through a conversion, despite regulatory uncertainty at the time.

Grayscale’s application to convert GBTC into a spot ETF was eventually approved by the US Securities and Exchange Commission in January 2024. This approval allowed GBTC to transition into a spot ETF and begin trading on the NYSE Arca exchange. The legal dispute had been a significant point of contention, with an August 2023 ruling compelling the SEC to reconsider its rejection of Grayscale’s application to convert the fund into an ETF.

On February 7, Judge Mark Gould ruled in favor of Grayscale, stating that Osprey’s claims against the asset manager were exempted from the Connecticut Unfair Trade Practices Act. Osprey responded by filing a motion for reargument on February 10, claiming that Gould’s ruling came before the close of discovery and overlooked the differences between how the Federal Trade Commission and Connecticut courts treat deceptive advertising.

The settlement marks the end of one of the more prominent legal clashes among crypto asset managers competing for early ETF dominance. Grayscale’s GBTC remains one of the largest Bitcoin investment vehicles in the United States. The resolution of this dispute is expected to provide clarity and stability for investors in the Bitcoin ETF space, highlighting the importance of legal settlements in resolving complex disputes in the rapidly evolving world of digital assets. The settlement agreement is a testament to the parties' commitment to resolving their differences amicably and focusing on their respective business goals.