Ben Strack

A competitor of Grayscale Investments has sued the cryptoasset manager, claiming Grayscale has misled investors about its services in an effort to steal market share.&nbsp;



In a suit <a href="https://civilinquiry.jud.ct.gov/DocumentInquiry/DocumentInquiry.aspx?DocumentNo=24393260">filed</a> Monday in Connecticut Superior Court, Osprey Funds alleges Grayscale engaged in “deceptive acts and unfair competition” in the asset management industry.



“Grayscale has made materially false and misleading statements in its advertising and promotion to the effect and in substance that turning its bitcoin asset management services into access to a bitcoin ETF was a foregone conclusion, when it knew that access was never likely to happen,” the complaint states.



An Osprey Funds representative declined to comment beyond the filing.&nbsp;



A Grayscale spokesperson called the lawsuit “frivolous” in an email to Blockworks.&nbsp;



“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 in the United States would directly benefit our industry peers,” the spokesperson added. “At Grayscale, we remain confident in our common sense, compelling legal arguments, and we look forward to a final decision from the US Court of Appeals by fall 2023.”



Grayscale is seeking to convert GBTC to an ETF — a process that executives have said would essentially eliminate the roughly <a href="https://ycharts.com/companies/GBTC/discount_or_premium_to_nav" target="_blank" rel="noreferrer noopener">40% discount</a> at which the vehicle currently trades.



<figure class="wp-block-embed aligncenter is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12595927/embed#?secret=gIcH4tfWhz" data-secret="gIcH4tfWhz" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">GBTC has returned 905% over the past six years, while BTC has given more than 2,200% | Chart by David Canellis</figcaption></figure>



The company <a href="https://blockworks.co/news/grayscale-sues-sec-over-rejection-of-proposed-spot-bitcoin-etf">sued the SEC in June</a> after it chose to block GBTC from becoming an ETF. That case crawls on, as the <a href="https://blockworks.co/news/grayscale-sec-illogical-denial-of-gbtc-conversion">cryptoasset manager called out the regulator</a> for “illogical” reasoning in its latest brief earlier this month.&nbsp;Oral arguments are <a href="https://grayscale.com/wp-content/uploads/2023/01/22-1142-Oral-Argument-Notice.pdf" target="_blank" rel="noreferrer noopener">set for</a> March 7.



Grayscale CEO <a href="https://blockworks.co/news/no-gbtc-redemptions-but-considering-other-options">Michael Sonnenshein said in December</a> if the company is unsuccessful in converting GBTC to an ETF, the firm would consider a tender offer.



The Monday filing comes after Osprey CEO Greg King earlier this month called his company <a href="https://blockworks.co/news/osprey-proposes-gbtc-takeover">the “best-positioned third party” to manage GBTC</a> in an <a href="https://ospreyfunds.io/wp-content/uploads/Open-Letter-to-Barry-Silbert-regarding-Grayscale-Bitcoin-Trust-from-Osprey-Funds-CEO-Greg-King-1.pdf" target="_blank" rel="noreferrer noopener">open letter</a> addressed to Digital Currency Group (DCG) CEO Barry Silbert.



DCG is the parent company of Grayscale Investments, which has operated <a href="https://blockworks.co/tag/gbtc">GBTC</a> since its 2013 launch. The trust now has roughly <a href="https://grayscale.com/products/grayscale-bitcoin-trust/" target="_blank" rel="noreferrer noopener">$14.6 billion</a> in assets and imposes a 2% management fee.



Osprey operates <a href="https://ospreyfunds.io/products/obtc/" target="_blank" rel="noreferrer noopener">its own bitcoin trust</a>, which has $64 million in assets. The trust carries a fee of 0.49%.



Hedge fund firm <a href="https://blockworks.co/news/lawsuit-against-grayscale-likely-to-drag-on">Fir Tree Partners sued Grayscale in December</a> in an effort to explore what it alleges to be potential “mismanagement” of GBTC. <a href="https://blockworks.co/news/grayscale-to-fight-fir-tree-lawsuit">Grayscale told Blockworks</a> the suit is “baseless and without merit.”



Updated Jan. 306, 2023 at 3:44 pm ET: Added quote from Grayscale.



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Grayscale Slapped With Another GBTC Lawsuit – This Time From Osprey

Osprey Funds is the latest digital assets-focused investment manager vying to take over management of Grayscale’s bitcoin trust (GBTC) as public pressure against the troubled vehicle continues to mount.&nbsp;



The chief executive of crypto fund issuer Osprey, Greg King, called his company the “best-positioned third party” to manage the trust in an <a href="https://ospreyfunds.io/wp-content/uploads/Open-Letter-to-Barry-Silbert-regarding-Grayscale-Bitcoin-Trust-from-Osprey-Funds-CEO-Greg-King-1.pdf" target="_blank" rel="noreferrer noopener">open letter</a> addressed to Digital Currency Group (DCG) CEO Barry Silbert on Friday. 



DCG is the parent company of Grayscale Investments, which has operated <a href="https://blockworks.co/tag/gbtc">GBTC</a> since its 2013 launch. The trust now has <a href="https://grayscale.com/products/grayscale-bitcoin-trust/" target="_blank" rel="noreferrer noopener">roughly $12 billion in assets</a> and imposes a 2% management fee — increasingly called out as unreasonable by the standards of passive crypto products. 



If appointed as GBTC’s manager, Osprey — which operates its own <a href="https://ospreyfunds.io/products/obtc/" target="_blank" rel="noreferrer noopener">bitcoin trust</a> — would slash GBTC’s management fee by roughly 75% to 0.49% a year. 



“​​We would seek to implement a redemption program as soon as possible,” King said in the letter.



GBTC has been trading at a nearly 40% discount to its net asset value (NAV) this week, <a href="https://ycharts.com/companies/GBTC/discount_or_premium_to_nav" target="_blank" rel="noreferrer noopener">according</a> to YCharts.com. 



Grayscale <a href="https://blockworks.co/news/grayscale-sues-sec-over-rejection-of-proposed-spot-bitcoin-etf">sued</a> the SEC in June after the regulator denied its proposal to convert GBTC to an ETF, an <a href="https://blockworks.co/news/grayscale-sec-illogical-denial-of-gbtc-conversion">ongoing</a> legal dispute. The company has said converting GBTC to an ETF would accomplish what GBTC shareholders have pined for: the ability of Grayscale to simultaneously create and redeem shares. The move would curtail GBTC’s immense discount to its underlying bitcoins.&nbsp;



Grayscale CEO Michael Sonnenshein <a href="https://blockworks.co/news/no-gbtc-redemptions-but-considering-other-options">said last month</a> that the company is not interested in offering a redemption program. If the company is unsuccessful in converting GBTC to an ETF, the firm would consider a tender offer, he added.



King’s letter comes after Valkyrie Investments <a href="https://valkyrieinvest.com/press/opportunities-around-gbtc/" target="_blank" rel="noreferrer noopener">proposed</a> taking over GBTC in a year end letter. Valkyrie co-founder Steven McClurg wrote then that his firm would “facilitate orderly redemptions at net asset value” and lower GBTC’s fee to 0.75%. Osprey, with its .49% proposal, is raising the bar on even lower fees. 



It also comes about a month after hedge fund firm Fir Tree Partners <a href="https://blockworks.co/news/lawsuit-against-grayscale-likely-to-drag-on">launched a lawsuit</a> alleging “mismanagement” of GBTC and demanding private Grayscale information as to the trust’s inner workings. Grayscale <a href="https://blockworks.co/news/grayscale-to-fight-fir-tree-lawsuit">called the suit “baseless”</a> last week.



An online <a href="https://twitter.com/DavidFBailey/status/1611780932066836493" target="_blank" rel="noreferrer noopener">campaign</a>, too, has surfaced in recent weeks and seeks to offer GBTC investors “a credible path to redemptions.”



A DCG spokesperson did not immediately return a request for comment.



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Osprey Leads Latest GBTC Takeover Attempt

<div id="highlights-block_625dc22cb8cc6" class="highlights">
 <ul>
 <li>Though Osprey Funds intends to eventually convert its bitcoin trust to an ETF, the company’s CEO told Blockworks, “We’ve seen no light at the end of the tunnel”</li>
 <li>Gemini executive calls Teucrium bitcoin futures decision the “precursor” to agency’s spot bitcoin ETF go-head</li>
 </ul>
 
</div>



When — or if — the SEC will sign off on a spot bitcoin ETF is anyone’s guess, but that isn’t stopping hopeful industry participants from eagerly speculating.



Industry watchers <a href="https://cms.blockworks.co/when-will-the-sec-approve-a-spot-bitcoin-etf/" target="_blank" rel="noreferrer noopener">weighed in last November</a> and again <a href="https://cms.blockworks.co/will-bidens-executive-order-speed-up-spot-bitcoin-etf-approval/" target="_blank" rel="noreferrer noopener">last month</a> after President Biden’s executive order urged government agencies to study digital assets.



The SEC earlier this month <a href="https://cms.blockworks.co/sec-approves-bitcoin-futures-etf-filed-under-the-33-act/" target="_blank" rel="noreferrer noopener">approved a bitcoin futures ETF</a> filed by fund group Teucrium under the Securities Act of 1933 — the law under which spot bitcoin ETFs have been filed.&nbsp;



Following the development, other firm executives weighed in on the timeline for spot bitcoin ETF approval during the <a href="https://cms.blockworks.co/crypto-and-tradfi-collide-at-miami-etf-conference/" target="_blank" rel="noreferrer noopener">Exchange ETF conference</a> in Miami Beach last week.&nbsp;



Osprey Funds CEO Greg King called the Teucrium approval “a bit of a head-scratcher,” as the agency previously had only given the go-ahead to bitcoin futures ETFs filed under the Investment Company Act of 1940.&nbsp;



“I was pretty bearish that a spot bitcoin ETF would get approved in the Gensler administration once the futures-based ETF got done with ProShares,” King told Blockworks. “I’m rethinking that.”



Akin to crypto asset manager Grayscale Investments, which is aiming to convert its Grayscale Bitcoin Bitcoin Trust (GBTC) to an ETF, Osprey Funds would like to port <a href="https://ospreyfunds.io/products/obtc/" target="_blank" rel="noreferrer noopener">its Bitcoin Trust</a> (OBTC) in the same manner. The firm has not yet filed to do so, however, as King said he doesn’t expect Grayscale to get approval. The agency is set to rule on <a href="https://cms.blockworks.co/grayscale-ceo-spot-bitcoin-etf-approval-is-the-next-natural-step-for-sec/" target="_blank" rel="noreferrer noopener">Grayscale’s proposal</a> in July.



“I think we’ll go another cycle on it,” he said. “Whether that’s another year, I’m not sure.”



The SEC has continuously cited concerns around the potential for market manipulation, which King said is “kind of unsolvable” until all bitcoin trading flows through regulated US exchanges.



“We’ve held off because we’ve seen no light at the end of the tunnel,” he said. “We maintain the dialogue with outside counsel and the SEC behind the scenes, but there’s no reason to formally file until you feel that the chances have improved significantly.”



Dave Abner, global head of business development at crypto custodian Gemini, dubbed the Teucrium approval a “precursor” to regulators greenlighting a spot product.



“Taking that step in different investor protections is a huge signal, in my mind, from the SEC that they are preparing to take this next step,” he said.&nbsp;



Meanwhile Simeon Hyman, head of ProShares’ investment strategy group, declined to speculate on when the SEC could permit such a product, instead laying out the broader investment case for a bitcoin futures ETF.&nbsp;



ProShares was the first US fund group to launch a bitcoin futures ETF in October, days before Valkyrie Investments. The ETF took in about $1 billion in assets during its first day of trading.



Though some industry participants have <a href="https://cms.blockworks.co/what-does-demand-for-bitcoin-futures-etfs-look-like-in-2022/" target="_blank" rel="noreferrer noopener">compared such products unfavorably</a> to a spot bitcoin ETF, Hyman said the futures market has more liquidity than spot trading, adding that roll costs — or rolling over a short-term contract into a longer-dated one — are shrinking.



“We think it’s a pretty robust solution, and to us, it’s more important than trying to read the tea leaves and think about when spot might be available,” Hyman told Blockworks.



Greg Friedman, Fidelity’s head of ETF management and strategy, did not share a guess of when the SEC could move to permit a spot bitcoin ETF. Though he called the Teucrium acceptance “interesting,” he noted it was just “another approval.”&nbsp;



Regulators <a href="https://www.sec.gov/rules/sro/cboebzx/2022/34-94080.pdf" target="_blank" rel="noreferrer noopener">denied</a> the fund group’s Wise Origin Bitcoin Trust in January.



“It’s a new industry; it’s a new space,” Friedman said. “They are protecting and doing what they’re supposed to be doing, so it’s hard to predict what is the last straw.”



Chris Matta, president of 3iQ’s US business, said the SEC is likely waiting on more regulatory oversight of exchanges. He predicted a spot bitcoin ETF to hit the market in the second half of 2023 or 2024, adding that he expects an ether futures ETF to come first.



During the conference, MicroStrategy CEO Michael Saylor said though the approval of a spot bitcoin ETF could be a year or two away, he thinks there’s “a more than 50% chance” that Grayscale has “the inside track” and gains approval first.



Grayscale CEO Michael Sonnenshein <a href="https://cms.blockworks.co/sec-approves-bitcoin-futures-etf-filed-under-the-33-act/" target="_blank" rel="noreferrer noopener">said earlier this month</a> the Teucrium decision “significantly weakened” the SEC’s stance against a spot bitcoin ETF. The executive <a href="https://cms.blockworks.co/grayscale-ceo-spot-bitcoin-etf-approval-is-the-next-natural-step-for-sec/" target="_blank" rel="noreferrer noopener">doubled down</a> on remarks that “all options would be on the table” if the SEC denied the proposal, including suing the agency.



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Crypto Execs ‘Read the Tea Leaves’ on Spot Bitcoin ETF Approval

Morgan Chittum

<div id="highlights-block_6197d2acb036a" class="highlights">
 <ul>
 <li>The firm has previously launched four funds: Osprey Bitcoin Trust, Osprey Solana Trust, Osprey Algorand Trust and Osprey Polkadot Trust</li>
 <li>Osprey has hired former Stocktwits executive, Justin Paterno, as managing director of the NFT fund</li>
 </ul>
 
</div>



Osprey Funds, one of the largest cryptocurrency investment firms, <a href="https://www.businesswire.com/news/home/20211118005296/en" target="_blank" rel="noreferrer noopener">announced</a> plans to launch a non-fungible token (NFT) fund on Thursday.&nbsp;



Dubbed “Osprey Alpha”, the NFT-focused investment vehicle will allow high-net worth individuals and institutional investors exposure to funds that invest in NFTs including assets such as gaming, art and a variety of digital collectibles.



“We’re in business to provide investors with exposure to the most exciting segments of the digital asset ecosystem,” Greg King, CEO of Osprey Funds, said in a statement. “With Osprey Alpha, we will focus on the development and rollout of several unique, actively-managed strategies for sophisticated investors, beginning with our NFT product.”



Additionally, Osprey has hired former Stocktwits executive and NFT collector, Justin Paterno, as managing director of the fund. Paterno will design the fund’s investment strategy, according to a press release.



“I see similarities between NFTs now and the early days of Web 2.0. Communities and networks have always been a major driver of value on the web — which increasingly defines culture,” Paterno said.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“NFTs allow communities to own the cultural capital they create. There is immense growth potential here.”</blockquote>



The Connecticut-based firm previously launched four other funds including Osprey Bitcoin Trust, <a href="https://cms.blockworks.co/osprey-funds-launches-solana-trust-amid-tokens-rally/" target="_blank" rel="noreferrer noopener">Osprey Solana Trust</a>, Osprey Algorand Trust and Osprey Polkadot Trust.



“At Osprey, I think, at a fundamental level, we fully believe in the power of blockchain-based technologies. Period. We’ve set ourselves up to both invest and help others invest in those technologies for the benefit of their long-term investment portfolios,” King previously told <a href="https://cms.blockworks.co/qa-ceo-greg-king-says-osprey-is-fully-committed-to-digital-assets/" target="_blank" rel="noreferrer noopener">Blockworks</a>.



Osprey Alpha is slated to launch early next year, according to the press release.



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Osprey Funds to Launch NFT-focused Investment Vehicle

<div id="highlights-block_614a27561d180" class="highlights">
 <ul>
 <li>Osprey Funds’ support of Ethereum-compatible blockchain Polygon (formerly Matic Network) comes after the firm launched an offering earlier this month focused on layer-1 Solana</li>
 <li>Top holdings of the First Trust SkyBridge Crypto Industry and Digital Economy ETF (CRPT) include Coinbase, Marathon Digital, Riot Blockchain, MicroStrategy and Square</li>
 </ul>
 
</div>



Osprey Funds has launched the first US fund to invest exclusively in the native token of the Polygon network, while First Trust Advisors and SkyBridge Capital have brought to market a new actively managed ETF that will buy the stocks of crypto and digital economy companies.



A protocol for developing blockchains on top of Ethereum, Polygon gains from Ethereum’s secure network while mitigating common blockchain pain points, such as high gas fees and slow transactions, according to Osprey Funds CEO Greg King.



“Polygon is compelling for the flexibility that it brings to ETH,” King told Blockworks in an email. “It is not just a layer-2 scaling solution — it delivers a set of tools that facilitate exciting new [decentralized apps] while still being part of the Ethereum ecosystem.”



Its native token, $MATIC, was priced at $1.12 as of 1:30 pm Eastern on Tuesday, according to <a href="https://www.coingecko.com/en/coins/polygon" target="_blank" rel="noreferrer noopener">CoinGecko</a>, which was down 10.6% in the last seven days. Polygon’s market capitalization was just below $7.5 billion at that time.



While often described as a layer-2, Polygon’s security model is based on an independent set of validator nodes that stake $MATIC and participate in validating transactions. Polygon periodically creates “checkpoints” recorded on the Ethereum mainnet, roughly every 10 minutes, of its state — a snapshot of its transaction record. That increases its security relative to some blockchains, but the Proof-of-Stake commit chain — an entirely separate blockchain — is quite different from layer-2 implementations built on top of Ethereum mainnet, like Optimism and Arbitrum, which inherit Ethereum’s security directly through the use of &#8220;optimistic <a href="https://ethereum.org/en/developers/docs/scaling/layer-2-rollups/" target="_blank" rel="noreferrer noopener">rollups</a>.&#8221;



<div class="wp-block-image"><figure class="aligncenter size-large is-resized"><img loading="lazy" decoding="async" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/09/2021-09-21-polygon-intrographic-2-1-1024x1024-1-1024x1024-1.jpg" alt="" class="wp-image-8338" width="512" height="512"/><figcaption>Graphic: <a href="https://immunebytes.com/introduction-to-polygon-is-it-the-solution-to-ethereums-problems/" target="_blank" rel="noreferrer noopener">immunebytes.com</a></figcaption></figure></div>



<h3 class="wp-block-heading">Branching out</h3>



Osprey’s launch comes about two weeks after the New York-based digital asset manager <a href="https://cms.blockworks.co/osprey-funds-launches-solana-trust-amid-tokens-rally/'" target="_blank" rel="noreferrer noopener">kicked off</a> the <a href="https://ospreyfunds.io/products/osol/" target="_blank" rel="noreferrer noopener">Osprey Solana Trust</a> for private placement. It also offers products focused on Bitcoin, Polkadot and Algorand.



Like the Solana Trust, the Polygon Trust is currently available to accredited investors and has a $10,000 minimum investment. Osprey intends to list the fund on the OTCQX market and has agreed to waive the management fee for all investors until January 2023.



King told Blockworks at the time that the firm was focused on launching first-to-market funds that track promising layer-1 protocols. Though he labeled Solana and Algorand as potential challengers to Ethereum, he said Osprey remains supportive of Ethereum.



Tushar Jain, a managing partner at Multicoin Capital, <a href="https://cms.blockworks.co/das-2021-are-layer-1s-better-than-layer-2s/" target="_blank" rel="noreferrer noopener">argued at Blockworks’ Digital Asset Summit</a> last week that layer-1 blockchains are currently more reliable than the layer-2s built on top of them. Ava Labs President John Wu said, <a href="https://cms.blockworks.co/das-2021-ava-labs-wu-says-economies-will-depend-on-next-gen-layer-1s/" target="_blank" rel="noreferrer noopener">during a separate session</a> at the conference, that the new wave of layer-1s “are where the economies will be.”&nbsp;



“Our future product development will continue its focus on layer 1s,” King said Tuesday, “but layer 2s and beyond are possible as we broaden the Osprey product set.”



Broader crypto exposure in an ETF



Also on Tuesday, First Trust unveiled an actively managed ETF sub-advised by SkyBridge Capital.



<a href="https://www.ftportfolios.com/LoadContent/gchdqptsgrao" target="_blank" rel="noreferrer noopener">The First Trust SkyBridge Crypto Industry and Digital Economy ETF</a> (CRPT) seeks to invest at least 80% of its net assets in the stocks and American depository receipts of crypto and digital economy companies. It will not invest directly in digital assets or indirectly through the use of derivatives or through investments in funds or trusts that hold them.



Anthony Scaramucci, founder and managing partner of SkyBridge, said in a statement that cryptocurrency adoption represents “the biggest macro trend since the commercialization of the internet.” The fund, which costs 85 basis points, will be managed by Scaramucci and Brett Messing, SkyBridge’s president and co-chief investment officer.



CRPT’s top five holdings are Coinbase, Marathon Digital, Riot Blockchain, MicroStrategy and Square, Bloomberg Intelligence Senior ETF Analyst Eric Balunchas noted in <a href="https://twitter.com/EricBalchunas/status/1440302883669348364" target="_blank" rel="noreferrer noopener">a Twitter post</a>.&nbsp;



The new fund’s largest competitor will be Amplify Investments’ Transformational Data Sharing ETF (BLOK), which has nearly $1.3 billion in assets. That actively managed product, which launched in January 2018, carries an expense ratio of 71 basis points.&nbsp;



VanEck’s Digital Transformation ETF (DAPP) and Bitwise Asset Management’s Crypto Industry Innovators ETF (BITQ), are index offerings that launched in April and May, respectively. DAPP costs 50bps, while BITQ is priced at 85bps.



“The honest truth is that there are so few companies that are even remotely pure plays in the space that they all look remarkably similar,” Dave Nadig, chief investment officer and director of research at ETF Trends, told Blockworks. “The top tens for BITQ, DAPP and CRPT are all essentially the same if not very close, with the weighting schemes the main difference.”



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“While I think it&#8217;s great there are so many options out there, choosing between them is extremely difficult based on anything but a most cursory set of analysis,” Nadig added. “Do you want indexed or not, what kind of concentration can you stomach, how long do you plan on holding and thus how fee sensitive are you?”</blockquote>



Other funds in the space include the Siren Nasdaq NexGen Economy ETF (BLCN), the Capital Link Global Fintech Leaders ETF (KOIN) and First Trust’s own Indxx Innovative Transaction &amp; Process ETF (LEGR). Invesco <a href="https://cms.blockworks.co/invesco-proposes-crypto-economy-etf/" target="_blank" rel="noreferrer noopener">revealed plans in June</a> to launch a Crypto Economy ETF that would invest primarily in entrenched crypto companies and up to 10% in bitcoin futures contracts.



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