10-Q: Grayscale Horizen Trust (ZEN) Reports Net Asset Decrease in Q3 2024 Amidst ZEN Price Volatility

Grayscale Horizen Trust (ZEN) experienced a decrease in net assets during the third quarter of 2024, primarily due to a decline in the price of Horizen (ZEN).

Summary

• Grayscale Horizen Trust (ZEN) is a Delaware Statutory Trust that holds Horizen (ZEN).
• The Trust's investment objective is to reflect the value of ZEN held by the Trust, less expenses.
• The Trust's net assets decreased by 55% in Q3 2024, ending at $3.923 million.
• This decrease was primarily driven by a decline in the price of ZEN from $14.83 on March 31, 2024, to $6.65 on June 30, 2024.
• The Trust's net realized and unrealized loss on investment in ZEN for the three months ended June 30, 2024, was ($4.848) million.
• The Sponsors Fee for the quarter was $33,000.
• As of June 30, 2024, each Share represented approximately 0.0863 of one ZEN.
• The Trust is not currently operating a redemption program.
• The Sponsor takes the position that the Trust is properly treated as a grantor trust for U.S. federal income tax purposes.
• DCG, the parent company of the Sponsor, holds a minority interest of less than 1.0% in Coinbase, Inc., the parent company of the Custodian.

Sentiment

Score: 4

Explanation: The sentiment is neutral to slightly negative due to the reported decrease in net assets and the identified risks associated with the Trust's investment in ZEN. The report highlights both positive aspects, such as the Sponsor's management, and negative aspects, such as market volatility.

Positives

• The Sponsor continues to manage the Trust's operations.
• The Trust maintains disclosure controls and procedures.
• The Sponsor has agreed to assume most of the expenses incurred by the Trust in exchange for the Sponsors Fee.

Negatives

• The Trust experienced a significant decrease in net assets due to ZEN price depreciation.
• The Shares have traded at both premiums and discounts to the value of ZEN held by the Trust.
• The Trust has not met its investment objective.
• The Trust is subject to various risks including market risk, liquidity risk, and other risks related to its concentration in a single asset, ZEN.

Risks

• The price of ZEN is volatile and subject to influence by many factors.
• There is a risk that some or all of the Trusts ZEN could be lost or stolen.
• If ZEN is determined to be a security, it may have material adverse consequences.
• The Trust relies on third-party service providers, and disruptions to their business operations could have an adverse impact.
• The Sponsor and the Trust may be subject to various litigation, regulatory investigations, and other legal proceedings.

Future Outlook

The Trust may in the future operate a redemption program subject to regulatory approval and approval by the Sponsor in its sole discretion, but currently has no intention of seeking regulatory approval to operate an ongoing redemption program.

Industry Context

The report provides insight into the performance of a single-asset trust focused on Horizen (ZEN) within the broader digital asset market, highlighting the volatility and risks associated with cryptocurrency investments.

Comparison to Industry Standards

• The document mentions several other Grayscale Trusts, including Grayscale Bitcoin Trust (BTC), Grayscale Ethereum Trust (ETH), and others, providing a basis for comparison within the Grayscale product suite.
• The report's discussion of market risk and reliance on third-party service providers is consistent with the challenges faced by other cryptocurrency investment products.

Legal Proceedings

• Osprey Funds, LLC filed a suit against the Sponsor alleging violation of the Connecticut Unfair Trade Practices Act.
• The Sponsor and Grayscale Bitcoin Trust believe this lawsuit is without merit and intend to vigorously defend against it.

Related Party Transactions

• The Trust pays a Sponsors Fee to Grayscale Investments, LLC, a related party.
• DCG, the parent company of the Sponsor, holds a minority interest in Coinbase, Inc., the parent company of the Custodian.
• As of June 30, 2024 and September 30, 2023, Shares of the Trust were held by related parties of the Trust.

Stakeholder Impact

• Shareholders are impacted by the decrease in net asset value and the volatility of the ZEN price.
• The Sponsor is responsible for managing the Trust and mitigating risks.
• The Custodian is responsible for safeguarding the ZEN held by the Trust.

Key Dates

Keywords

Grayscale Horizen Trust, ZEN, Horizen, Digital Currency, Cryptocurrency, Net Assets, Sponsor's Fee, Financial Statements, Investment, Trust