Investment management firm Osprey Funds on Monday sued Grayscale Investments, alleging that its competitor lied to investors in its
Grayscale Bitcoin Trust
about how likely it was that GBTC would be converted into an exchange-traded fund.
The trust (ticker: GBTC), with $14.6 billion in assets, is by far the largest Bitcoin fund. Unlike with ETFs, the fund’s shares can trade as a large discount or premium to the value of the Bitcoin it holds. As of Friday, GBTC shares traded for $12.36, a 41% discount to the value of its holdings.
Grayscale for years has tried and failed to win approval from the Securities and Exchange Commission to convert its fund into an ETF. Conversion likely would cause that discount to vanish, representing a bonanza for holders of the fund.
Last year, Grayscale sued the SEC, calling the decision “arbitrary.” A court is scheduled to hear oral arguments in the case in March.
Osprey manages the Osprey Bitcoin Trust (OBTC), a competitor of GBTC that is much smaller, with $64.2 million in assets. As of Friday, Osprey traded at a 30% discount to the underlying value of its Bitcoin. Osprey earlier this month said it would pursue regulatory approval of a redemption program to help close the gap.
In the complaint, which was filed in Connecticut Superior Court, Osprey alleged that Grayscale had promoted GBTC’s conversion into an ETF as a “foregone conclusion,” despite the SEC’s refusal to approve similar products.
“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,” the complaint said.
GBTC carries an annual fee of 2% of its assets, while OBTC’s fee is 0.49%.
The complaint also said Grayscale charged high fees in part because of business it had sent to “over-priced affiliates” of the company.
“The lawsuit filed by Osprey Funds against Grayscale Investments is frivolous,” a Grayscale spokeswoman said in a statement. She said Grayscale believes SEC approval to convert GBTC into a spot Bitcoin ETF would benefit others in the industry and that the firm continued to expect a court decision by this fall.
Osprey CEO Greg King earlier this month on Twitter had proposed that his company replace Grayscale as GBTC’s sponsor.
Write to Joe Light at firstname.lastname@example.org