Just last week we wrote about the oft-visited subject of the refusal of the U.S. Securities and Exchange Commission (SEC) to approve a spot Bitcoin ETF, even though it has approved futures Bitcoin ETFs.  And we noted that Grayscale Investments LLC (Grayscale) has appealed to the D.C. Circuit the SEC’s decision in its case, stressing the arbitrary nature of the SEC’s position concerning spot ETFs; oral argument is scheduled for March 7.

On January 30, 2023, Osprey Funds LLC, a Fairfield, CT based company, sued Grayscale in Connecticut state court for unfair trade practices.  Grayscale, of course, is the largest player in this field, with $14.6 billion  under management (according to the Complaint), as sponsor of the Grayscale Bitcoin Trust (“GBTC”).  Osprey, a competitor, manages about $100 million in assets. In connection with the above issue, Osprey alleges as follows:

Since no later than in or about late 2020…Grayscale has regularly advertised and promoted its service in a false and misleading way as providing access to Grayscale Bitcoin Trust with a definitive conversion of the Grayscale Bitcoin Fund to an exchange traded fund [which] it referred to as “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.

The timing is certainly interesting, in light of Grayscale’s lawsuit against the SEC.  Perhaps it is best viewed through the prism of the open letter that Osprey CEO Greg King wrote to the CEO of Grayscale’s parent, asking that Osprey be named as the sponsor of GBTC to replace Grayscale.

That offer comes on the heels of the proposal made earlier this year by Valkyrie, the company behind the $19 million Valkyrie Bitcoin Strategy ETF, a Bitcoin futures fund, to take over management of GBTC.  Both Valkyrie and Osprey argue that they are better positioned to reduce the discount at which GBTC was trading, compared to the net asset value, which had reached 49%.  Both also promised to reduce the two percent fee that Grayscale charged.

Grayscale issued a response to the lawsuit that called it “frivolous” and said: “The conversion of GBTC to an ETF is the best long-term product structure for Grayscale’s investors, and approval of a spot Bitcoin ETF would directly benefit our industry peers.   At Grayscale, we remain confident in our common-sense, compelling legal arguments, and we look forward to a final decision from the D.C. Court of Appeals by fall 2023.”


David Zaslowsky has a degree in computer science and, before going to Yale Law School, was a computer programmer. His practice focuses on international litigation and arbitration. He has been involved in cases in trial and appellate courts across the United States and before arbitral institutions around the world. Many of David’s cases, including some patent cases, have related to technology. David has been included in Chambers for his expertise in international arbitration. He is the editor of the firm's blockchain blog.