Bitwise Bitcoin ETF Set to Acquire $120M Osprey Bitcoin Trust in Strategic Move

Bitwise Asset Management’s Bitcoin ETF (BITB) is gearing up to absorb $120 million in Bitcoin from the Osprey Bitcoin Trust (OBTC). This proposed Bitwise Bitcoin ETF absorption of Osprey Bitcoin Trust follows an agreement between Bitwise and Osprey Funds, unveiled in a joint statement on August 27. This agreement marks a strategic acquisition that could reshape the competitive dynamics in the Bitcoin ETF market.

The agreement between the two firms, which have been pivotal players in the Bitcoin investment space, outlines a plan to transfer OBTC’s assets into the Bitwise Bitcoin ETF. This transaction, subject to closing conditions, is expected to conclude later this year, signalling a major consolidation within the industry.

A Closer Look at the Bitwise Bitcoin ETF Acquisition of Osprey Bitcoin Trust

The acquisition will result in OBTC unitholders receiving shares of the Bitwise Bitcoin ETF in exchange for their current holdings. This move provides a seamless transition for OBTC investors, who will now benefit from Bitwise‘s larger scale and lower management fees. The Osprey Bitcoin Trust, which had been trading at a discount to Bitcoin for several months, will be liquidated as part of this deal.

Osprey Funds, headquartered in Fairfield, Connecticut, launched OBTC on the OTC market in February 2021. At its inception, OBTC was seen as a formidable competitor to the Grayscale Bitcoin Trust (GBTC), the industry’s largest Bitcoin investment vehicle. However, the competitive landscape changed dramatically when GBTC transitioned to a spot Bitcoin ETF, leaving OBTC struggling to maintain its market share.

In a surprising move, Osprey Funds filed a lawsuit against Grayscale in January 2023, accusing the latter of engaging in misleading advertising that allowed it to dominate what was effectively a two-participant market. Despite this legal battle, OBTC continued to face challenges, particularly as its units began trading at a discount to the underlying value of Bitcoin. By March, Osprey had announced that it was exploring strategic alternatives, including the potential sale or liquidation of the trust.

Strategic Timing and Market Impact

For Bitwise, the acquisition of the Osprey Bitcoin Trust represents a calculated strategic move. “This acquisition by the Bitwise Bitcoin ETF is a significant step in our ongoing strategy to expand our market presence and provide investors with a superior product,” said Bitwise CEO Hunter Horsley. “We believe that this move will offer OBTC unitholders the benefits of our scale and expertise, along with the potential for improved returns.”

Bitwise has made significant strides in the ETF market since the launch of its spot Bitcoin ETF seven months ago. During this period, the Bitwise Bitcoin ETF has attracted $2 billion in investor funds, positioning it as a major player in the market. However, despite this success, Bitwise’s ETF has not yet matched the performance of the BlackRock iShares Bitcoin Trust (IBIT), which has amassed a staggering $21 billion in assets since its January debut.

Nevertheless, the Bitwise Bitcoin ETF’s lower management fee of 0.20%, compared to OBTC’s 0.49%, is likely to be a strong selling point for investors looking for cost-effective exposure to Bitcoin. “We wanted a solution that worked for all, and this seems to be the best option,” Osprey Funds founder and CEO Greg King stated in an August 27 post on X (formerly Twitter), highlighting the benefits of the deal for OBTC investors.

Market Reaction and Future Outlook

The market’s response to the announcement has been cautiously optimistic. Analysts believe that the consolidation of OBTC into the Bitwise Bitcoin ETF could lead to a more efficient market, with tighter spreads between the ETF’s trading price and the net asset value (NAV) of the underlying Bitcoin. Currently, OBTC’s discount to NAV has hovered around 3% to 5%, while the Bitwise Bitcoin ETF has traded much closer to NAV, with a discount or premium of nearly 0%.

“This acquisition could mark a turning point for Bitwise,” said John Davi, founder of Astoria Portfolio Advisors. “By absorbing OBTC’s assets, the Bitwise Bitcoin ETF increases its AUM and enhances its credibility as a leading Bitcoin ETF provider.”

Despite the promising outlook, the deal’s success hinges on several factors, including regulatory approval and market conditions. If completed as expected, the acquisition will not only solidify Bitwise’s position in the Bitcoin ETF space but could also set the stage for further consolidation in the industry.

As the cryptocurrency market continues to evolve, the Bitwise Bitcoin ETF’s acquisition of the Osprey Bitcoin Trust underscores the ongoing shift towards consolidation and strategic growth. With the deal expected to close by the end of the year, investors and industry observers will be watching closely to see how this move impacts the broader market. For now, the Bitwise Bitcoin ETF appears poised to take a leading role in the next phase of Bitcoin ETF development.