10-Q: Grayscale Horizen Trust (ZEN) Reports Significant Asset Increase in Q2 2024 Amidst ZEN Price Appreciation

Grayscale Horizen Trust (ZEN) saw its net assets increase to $8.804 million in Q2 2024, driven by a substantial rise in the price of Horizen (ZEN).

Summary

• Grayscale Horizen Trust (ZEN) filed its Form 10-Q for the quarter ended March 31, 2024.
• The Trust's net assets increased to $8.804 million as of March 31, 2024, compared to $4.671 million as of September 30, 2023.
• The increase was primarily driven by the appreciation in the price of Horizen (ZEN).
• The fair value of ZEN held by the Trust was $14.83 per ZEN as of March 31, 2024, compared to $7.77 per ZEN as of September 30, 2023.
• The Trust's investment objective is to reflect the value of ZEN held by the Trust, less expenses and liabilities.
• The Trust's Shares are traded on the OTCQX U.S. Marketplace under the symbol HZEN.
• The Sponsor's Fee is calculated as 2.5% of the aggregate value of the Trust's assets, less liabilities, and is paid monthly in arrears in ZEN.
• The Trust is not currently operating a redemption program for its Shares.
• The Trust had 6,838,000 Shares outstanding as of April 30, 2024.
• The Principal Market NAV per Share was $1.29 as of March 31, 2024, compared to $0.68 as of September 30, 2023.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to the significant increase in asset value and improved financial performance. However, risks associated with cryptocurrency investments and the lack of a redemption program temper the overall sentiment.

Positives

• The Trust experienced a significant increase in net assets due to the appreciation of ZEN.
• The Principal Market NAV per Share increased substantially.
• The Trust's financial performance improved significantly compared to the same period last year, with a net increase in net assets compared to a net decrease.
• The Trust maintains disclosure controls and procedures to ensure accurate financial reporting.

Negatives

• The Trust is subject to market risk and liquidity risk due to its concentration in a single asset, ZEN.
• The Trust is not currently operating a redemption program, which may limit investor liquidity.
• The Shares have traded at both premiums and discounts to the value of ZEN held by the Trust.
• The Sponsor's Fee reduces the overall return for investors.

Risks

• The price of ZEN is volatile and subject to various factors, including global supply and demand, theft, competition, and political and economic conditions.
• There is a risk of loss or theft of the Trust's ZEN.
• The SEC could determine that ZEN is a security, which could have material adverse consequences.
• The Trust relies on third-party service providers, and disruptions to their operations could negatively impact the Trust.
• The Trust may be subject to litigation and regulatory investigations.

Future Outlook

The Trust may operate a redemption program in the future, subject to regulatory approval and approval by the Sponsor, 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 cryptocurrency trust, reflecting the volatility and potential for growth in the digital asset market. The approval of Grayscale Bitcoin Trust (BTC) as an exchange-traded product may influence future decisions regarding similar products, including Grayscale Horizen Trust (ZEN).

Comparison to Industry Standards

• Grayscale offers a range of digital asset trusts, including Grayscale Bitcoin Trust (BTC), Grayscale Ethereum Trust (ETH), and others, allowing investors to gain exposure to various cryptocurrencies.
• The Sponsor also acts as the sponsor and manager of other investment products including Grayscale Basic Attention Token Trust (BAT) (OTCQB: GBAT), Grayscale Bitcoin Cash Trust (BCH) (OTCQX: BCHG), Grayscale Chainlink Trust (LINK) (OTCQX: GLNK), Grayscale Decentraland Trust (MANA) (OTCQX: MANA), Grayscale Ethereum Trust (ETH) (OTCQX: ETHE), Grayscale Ethereum Classic Trust (ETC) (OTCQX: ETCG), Grayscale Filecoin Trust (FIL) (OTCQB: FILG), Grayscale Litecoin Trust (LTC) (OTCQX: LTCN), Grayscale Livepeer Trust (LPT) (OTCQX: GLIV), Grayscale Solana Trust (SOL) (OTCQX: GSOL), Grayscale Stellar Lumens Trust (XLM) (OTCQX: GXLM), Grayscale Zcash Trust (ZEC) (OTCQX: ZCSH), Grayscale Decentralized Finance (DeFi) Fund LLC (OTCQB: DEFG), Grayscale Digital Large Cap Fund LLC (OTCQX: GDLC), and Grayscale Smart Contract Platform Ex Ethereum (ETH) Fund LLC, each of which is an affiliate of the Trust.
• The following investment products sponsored or managed by the Sponsor are also SEC reporting companies with their shares registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the Exchange Act): Grayscale Bitcoin Cash Trust (BCH), Grayscale Ethereum Trust (ETH), Grayscale Ethereum Classic Trust (ETC), Grayscale Litecoin Trust (LTC), Grayscale Stellar Lumens Trust (XLM), Grayscale Zcash Trust (ZEC), and Grayscale Digital Large Cap Fund LLC.
• On January 10, 2024, the Securities and Exchange Commission (the SEC) approved an application under Rule 19b-4 of the Exchange Act by NYSE Arca, Inc. (NYSE Arca) to list the shares of the Grayscale Bitcoin Trust (BTC), which began trading on NYSE Arca on January 11, 2024.
• Grayscale Bitcoin Trust (BTC) is an SEC reporting company with its shares registered pursuant to Section 12(b) of the Exchange Act.

Legal Proceedings

• Osprey Funds, LLC filed a suit against the Sponsor alleging violations of the Connecticut Unfair Trade Practices Act; the Sponsor intends to vigorously defend against it.
• Alameda Research, Ltd. filed a suit against the Sponsor, DCG, Michael Sonnenshein and Barry Silbert alleging various breach of contract and fiduciary duty claims, including that the defendants had breached the terms of the trust agreements of Grayscale Bitcoin Trust and Grayscale Ethereum Trust (ETH) for failing to reduce the Sponsors fees and operate a redemption program (the Initial Complaint).
• Alameda voluntarily dismissed the action without prejudice, thereby terminating the action.

Related Party Transactions

• The Trust pays a Sponsor's Fee to Grayscale Investments, LLC, a related party.
• Shares of the Trust are held by related parties of the Trust.
• The Sponsor's parent, an affiliate of the Trust, holds a minority interest in Coinbase, Inc., the parent company of the Custodian.

Stakeholder Impact

• Shareholders benefit from the increase in the value of ZEN held by the Trust.
• Shareholders are subject to the risks associated with cryptocurrency investments.
• The Sponsor benefits from the Sponsor's Fee.
• The Custodian benefits from providing custodial services for the Trust's ZEN.

Next Steps

• The Trust will continue to monitor the market and manage its ZEN holdings.
• The Sponsor may consider seeking regulatory approval for a redemption program in the future.
• The Trust will continue to provide quarterly reports to investors.

Key Dates

Keywords

Grayscale Horizen Trust, Horizen, ZEN, Cryptocurrency, Digital Asset, Trust, Financial Report, OTCQX, HZEN, Sponsor's Fee