Osprey argues that the judge’s decision was premature and misinterpreted key legal exemptions. Meanwhile, ETF analysts gave a 90% chance of approval for a spot Litecoin ETF, ahead of other proposed crypto ETFs for Solana, XRP, and Dogecoin. Additionally, North Carolina introduced a bill to invest public funds in Bitcoin, joining a growing number of states exploring digital asset adoption.
Grayscale Bitcoin Fund Lawsuit Takes a New Turn
Osprey Funds asked a Connecticut state court judge to revisit his recent ruling in favor of Grayscale Investments in a $2 million unfair trade lawsuit about the asset manager’s Bitcoin fund. In a motion for reargument that was filed on Feb. 10, Osprey argued that Judge Mark Gould’s Feb. 7 decision was premature, as it was issued before the close of discovery and improperly broadened the scope of an exemption under the Connecticut Unfair Trade Practices Act (CUTPA).
Osprey originally sued Grayscale and Delaware Trust Company in January of 2023 after alleging that they engaged in deceptive advertising regarding the Grayscale Bitcoin Trust (GBTC), which allowed the fund to dominate the market. The lawsuit claimed that Grayscale falsely presented the conversion of GBTC into a Bitcoin exchange-traded fund (ETF) as inevitable, despite knowing that regulatory approval was unlikely at the time.
However, Judge Gould dismissed Osprey’s claims, and ruled that they involved securities transactions, which are exempt from CUTPA. He also pointed out that at the time of the lawsuit, both Osprey and Grayscale were the only asset managers providing trust-based products that offered ticker-based exposure to Bitcoin.
The legal landscape shifted a year later when the Securities and Exchange Commission (SEC) approved the long-awaited conversion of GBTC into an ETF in January 2024. Despite this, Osprey tried to settle its claims against Grayscale for just under $2 million in July of 2024, but Grayscale declined the offer.
In its Feb. 10 filing, Osprey argued that Judge Gould’s decision misinterpreted the relationship between deceptive advertising and securities transactions under both Connecticut and federal law. The firm also believes that the ruling incorrectly applied a narrow exemption from CUTPA, effectively extending it to all claims involving firms operating in the securities, asset management, or cryptocurrency industries. Osprey clarified that it was not involved in any securities transaction with Grayscale and that its claims were not focused on any transaction being fraudulent or deceptive between parties but rather on how Grayscale’s advertising practices gave it an unfair competitive advantage.
(Source: Osprey Funds)
For now, Osprey is not letting its legal battles slow it down. Last month, the firm filed plans with the SEC to convert its Osprey Bitcoin Trust (OBTC) into a spot Bitcoin ETF after an acquisition deal with rival Bitwise collapsed.
Litecoin ETF Has Highest Approval Odds
The crypto ETF industry as a whole is also moving on despite the tensions between Grayscale and Osprey. Bloomberg ETF analysts James Seyffart and Eric Balchunas placed a 90% probability on the approval of a spot Litecoin ETF by the SEC before the end of the year. They believe its chances of approval in 2025 are higher than other proposed crypto ETFs, including those for XRP, Solana, and Dogecoin, which they estimate at 65%, 70%, and 75%, respectively.
Litecoin was created in 2011 as a faster alternative to Bitcoin, and it operates on a proof-of-work consensus mechanism similar to Bitcoin. The analysts believe that the SEC is more likely to see Litecoin as a commodity, and with the necessary S-1 and 19b-4 forms already filed and acknowledged, its path to approval seems a lot more straightforward.
The push for more crypto ETFs follows the strong demand for Bitcoin and Ethereum ETFs, which accumulated net inflows of $40.7 billion and $3.18 billion, respectively, since their launches in January and July 2024. While Seyffart does not expect a Litecoin ETF to attract as much demand, he pointed out that it could still be viable for fund issuers with as little as $50 million in assets. He explained that ETFs do not necessarily need to generate large inflows to be worthwhile for their issuers.
Bitcoin ETF flow (Source: Farside Investors)
The SEC’s final deadlines to decide on the Litecoin, Solana, XRP, and Dogecoin ETFs fall between Oct. 2 and Oct. 18. Seyffart suggested that a Litecoin ETF could launch before then. Meanwhile, ETFs for Hedera and Polkadot have also been filed by Canary Capital and 21Shares, though the analysts have not assigned approval odds to them just yet.
Seyffart expects more crypto ETF filings, and predicted that issuers will follow a "spaghetti cannon approach" by launching multiple products to see which gain traction. He expects a long list of ETFs holding digital assets to emerge, with those failing to attract investor interest eventually liquidating. Balchunas mentioned that the probability of approval for all these crypto ETFs, except for Litecoin, was below 5% before Donald Trump won the US presidential election in November 2024.
Despite the optimism surrounding certain ETF approvals, there are still some regulatory concerns over Solana and XRP’s classification as securities. Because of this, Seyffart predicts that an XRP ETF will not be approved until the SEC’s lawsuit against Ripple is fully resolved.
(Source: X)
In August of 2023, Ripple secured a partial legal victory when a court ruled that XRP was not a security when it was sold on secondary markets. However, the SEC appealed this decision and held firm that Ripple violated securities laws by selling XRP to retail investors. These legal actions took place under the leadership of Gary Gensler, but Ripple is now hoping that acting SEC chair Mark Uyeda will reconsider and withdraw the case.
Solana’s regulatory status is also still uncertain. Seyffart stated that before the SEC can evaluate Solana for a commodities ETF structure, its classification must be resolved.
North Carolina Proposes Bill to Invest Public Funds in Bitcoin
North Carolina also recently introduced legislation that will allow the state treasurer to invest public funds in digital assets. The "NC Digital Assets Investments Act" (HB 92) was proposed by House Speaker Destin Hall on Feb. 10, and it aims to diversify state investments by permitting digital asset holdings, provided they meet specific criteria.
To qualify, digital assets have to be an exchange-traded product and have maintained an average market cap of at least $750 billion over the past 12 months. Currently, only Bitcoin exchange-traded products meet this threshold. Additionally, the bill limits digital asset investments to 10% of any state fund’s balance at the time of investment.
Hall believes that investing in Bitcoin could generate positive yields for the state’s investment fund, and may position North Carolina as a leader in technological adoption. He also compared the proposal to former President Donald Trump’s vision of a national Bitcoin stockpile, and stated that North Carolina should take the lead at the state level.
States considering Bitcoin (Source: Bitcoin Reserve Monitor)
Currently, 19 states introduced similar proposals, and Arizona and Utah have advanced bills beyond the House committee level. Meanwhile, North Dakota has rejected this legislation.
