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 an April 9 court filing, 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 filing noted that all tasks can be done within 45 days, but it is uncertain whether a shorter extension would suffice. Details of the settlement have not been made public.

The legal battle between the two firms 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 deceit. Specifically, Osprey alleged that Grayscale promoted its Grayscale Bitcoin Trust (GBTC) as a means to access a spot Bitcoin ETF through a conversion, presenting this conversion as a certainty despite regulatory uncertainty at the time. Grayscale’s application to convert GBTC into a spot ETF was eventually approved by the U.S. Securities and Exchange Commission in January 2024. An August 2023 ruling compelled the SEC to reconsider its rejection of Grayscale’s application to convert the fund into an ETF, allowing GBTC to transition into a spot ETF and begin trading on the NYSE Arca exchange.

On February 7, Judge Mark Gould sided with Grayscale, ruling 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,” which is the formal evidence-gathering phase of a lawsuit. The fund also argued that the ruling overlooked the differences between how the Federal Trade Commission and Connecticut courts treat deceptive advertising. The settlement ended 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 settlement agreement, while not disclosing the specific terms, indicates that both parties have agreed to resolve their differences amicably. This resolution is significant as it allows Grayscale to proceed with its plans to convert its Bitcoin Trust into an ETF without further legal obstacles. The settlement comes at a time when the cryptocurrency market is experiencing significant regulatory scrutiny. The conversion of Grayscale's Bitcoin Trust into an ETF would provide investors with a more accessible and regulated way to gain exposure to Bitcoin, potentially increasing the legitimacy and adoption of cryptocurrencies in mainstream finance. However, the regulatory environment remains uncertain, with ongoing debates about the appropriate oversight of digital assets.

The resolution of this legal dispute is a positive development for both Grayscale and Osprey, as it allows them to focus on their respective business strategies without the distraction of litigation. For Grayscale, the settlement paves the way for the potential launch of a Bitcoin ETF, which could attract a broader range of investors and further solidify its position as a leading digital asset management firm. For Osprey, the settlement provides clarity and allows the company to continue its operations without the burden of a lengthy legal battle. The settlement also highlights the importance of regulatory clarity in the cryptocurrency industry. As digital assets continue to gain traction, regulatory bodies are grappling with how to oversee this emerging asset class. The resolution of this dispute demonstrates the need for clear guidelines and frameworks that can facilitate the growth of the industry while protecting investors. The U.S. Securities and Exchange Commission's eventual clearance of Grayscale's ETF conversion is a step in the right direction, but ongoing regulatory developments will continue to shape the future of digital assets.