Osprey Funds Plans to Convert Bitcoin Trust into ETF After Bitwise Acquisition Falls Through

Osprey Funds, the investment management firm behind the Osprey Bitcoin Trust (OBTC), has announced plans to seek approval from the U.S. Securities and Exchange Commission (SEC) to convert its Bitcoin trust into an exchange-traded fund (ETF). This move comes after a previously announced deal for Bitwise Asset Management to acquire OBTC was terminated due to regulatory hurdles.

In a statement issued on January 14, 2025, Osprey Funds revealed its intention to file a Form S-1 registration statement with the SEC "as soon as practicable." The move follows the end of Osprey's planned acquisition deal with Bitwise, which was initially announced in August 2024. The deal was scrapped after the necessary regulatory approvals were not secured by the December 31, 2024 deadline.

Osprey Bitcoin Trust: A Competitor to Grayscale's Bitcoin Trust

OBTC, which was launched in February 2021, has been a competitor to the much larger Grayscale Bitcoin Trust (GBTC). The latter transitioned into a spot Bitcoin ETF in January 2024, further intensifying the competition in the space. OBTC currently tracks the price of Bitcoin without holding the actual asset and has $181 million in assets under management (AUM).

As part of Osprey's plans to pivot, the firm is now exploring the possibility of converting OBTC into a fully regulated Bitcoin ETF. The decision comes amid an increasing number of firms entering the ETF market, following significant gains in the spot Bitcoin ETF sector. In December 2024, both Hashdex and Franklin Templeton received SEC approval for their Bitcoin and Ether index ETFs, fueling further competition.

The Ongoing Legal and Market Landscape

Osprey's move to convert OBTC into an ETF also follows a turbulent period for the firm. In January 2023, Osprey filed a lawsuit against Grayscale, accusing the asset manager of misleading advertising and promotional tactics related to the potential conversion of its Bitcoin trust into an ETF. Osprey claims that Grayscale's actions led to a monopoly in the Bitcoin OTC trust market. The lawsuit remains ongoing.

In addition, Osprey had considered selling or liquidating OBTC in March 2023 after discovering that units of the trust were trading at a significant discount to the value of Bitcoin. However, with the recent plans to pursue an ETF conversion, the firm is shifting its strategy to further align with the growing demand for Bitcoin ETFs in the market.

OBTC Performance and Future Outlook

Following the announcement, OBTC's unit price saw a 3% increase, closing at $29.84 in the last trading session. Over the past year, OBTC has gained more than 151%, although it is still down from its all-time high of $50, which was reached on February 12, 2021, when the trust first began trading.

Osprey Funds, based in Fairfield, Connecticut, will continue to navigate the evolving landscape of the Bitcoin investment market. As more Bitcoin ETFs are introduced and gain regulatory approval, Osprey's move to convert OBTC into an ETF positions the firm to tap into a rapidly expanding market.

With the regulatory landscape shifting and the market for Bitcoin ETFs heating up, Osprey's decision to pursue an ETF conversion reflects both the growing interest in regulated Bitcoin products and the firm’s efforts to remain competitive in the space. As the firm moves forward, the success of this new strategy will depend largely on regulatory approval and the broader market conditions for digital asset investment products.