10-Q: Grayscale Horizen Trust (ZEN) Sees Net Asset Increase Amidst Corporate Reorganization in Q1 2025

Grayscale Horizen Trust (ZEN) reports a significant increase in net assets for the quarter ended December 31, 2024, driven by ZEN price appreciation and share creations, while undergoing a corporate reorganization.

Summary

• Grayscale Horizen Trust (ZEN) reported its financial results for the quarter ended December 31, 2024.
• The Trust's net assets increased significantly to $25.713 million, compared to $4.767 million at the end of September 2024.
• This increase was primarily driven by the appreciation in the price of ZEN, which rose from $8.13 to $28.91 during the quarter.
• The Trust also saw an increase in shares outstanding, from 6,838,000 to 10,438,700, due to the issuance of new shares in exchange for ZEN deposits.
• The net increase in net assets resulting from operations was $15.377 million for the quarter, compared to $0.789 million for the same period in 2023.
• The Sponsor's Fee for the quarter was $56,000, compared to $37,000 in the prior year.
• A corporate reorganization occurred on January 1, 2025, with Grayscale Investments, LLC merging into Grayscale Operating, LLC, and subsequent changes in the Sponsor role.
• As of February 6, 2025, the fair value of ZEN was $11.26 per ZEN.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to the significant increase in net assets and ZEN price, but tempered by the inherent risks associated with cryptocurrency investments and the ongoing legal proceedings.

Positives

• Significant increase in net assets driven by ZEN price appreciation.
• Increase in shares outstanding indicates investor interest and demand.
• The Trust's disclosure controls and procedures were deemed effective as of the end of the period covered by the report.
• Net increase in net assets resulting from operations was $15.377 million for the quarter ended December 31, 2024.

Negatives

• The Trust is subject to various risks including market risk, liquidity risk, and other risks related to its concentration in a single asset, ZEN.
• The Shares quoted on OTCQX have not reflected the value of ZEN held by the Trust, less the Trusts expenses and other liabilities, but instead have traded at both premiums and discounts to such value, which at times have been substantial.
• The Trust is not accepting redemption requests from shareholders.

Risks

• The Trust is subject to market risk, liquidity risk, and concentration risk due to its investment in ZEN.
• Fluctuations in the price of ZEN could materially and adversely affect an investment in the Shares of the Trust.
• 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 for ZEN and the Trust.
• The Trust relies on third-party service providers to perform certain functions essential to its operations.
• The Sponsor and the Trust may be subject to various litigation, regulatory investigations, and other legal proceedings that arise in the ordinary course of its business.

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

This announcement reflects the broader trend of increasing institutional interest in digital assets, as evidenced by the creation of new shares and the rise in ZEN's price. The corporate reorganization is part of a larger strategic shift within Grayscale Investments, potentially aimed at streamlining operations and positioning the company for future growth in the digital asset space.

Comparison to Industry Standards

• Grayscale's Horizen Trust, like other single-asset trusts such as those for Bitcoin (GBTC) and Ethereum (ETHE), aims to provide investors with exposure to a specific cryptocurrency without the complexities of direct ownership.
• Compared to spot ETFs, these trusts often trade at premiums or discounts to their NAV, reflecting market sentiment and demand, as well as the lack of a redemption mechanism.
• The 2.5% sponsor fee is relatively high compared to the fees charged by some spot Bitcoin ETFs, which range from 0.2% to 1.5%.
• The Trust's performance is directly tied to the price of Horizen (ZEN), making it more volatile than diversified crypto funds like Grayscale's Digital Large Cap Fund (GDLC).

Management Changes

Legal Proceedings

• Osprey Funds, LLC filed a suit against the Sponsor alleging violations of the Connecticut Unfair Trade Practices Act (CUTPA).
• The Court granted the Sponsors motion for summary judgment on February 7, 2025.

Related Party Transactions

• The Trust pays a Sponsor's Fee to Grayscale Investments Sponsors, LLC, calculated as 2.5% of the aggregate value of the Trust's assets.
• As of December 31, 2024, 3,372,495 Shares of the Trust were held by related parties of the Trust.

Stakeholder Impact

• Shareholders benefit from the increase in net asset value and potential future redemption program.
• The Sponsor benefits from the Sponsor's Fee.
• The Custodian benefits from the Custodian Fee.
• Authorized Participants benefit from the creation of Shares.

Next Steps

• The Trust will continue to monitor the market for ZEN and manage the Trust's assets accordingly.
• Grayscale Investments Sponsors, LLC will become the sole remaining Sponsor of the Trust effective May 3, 2025.
• The Trust may seek regulatory approval to operate a redemption program in the future.

Key Dates