10-K: Grayscale Zcash Trust (ZEC) 2024 Annual Report: Navigating Volatility in the Digital Asset Market

Grayscale Zcash Trust's 2024 annual report reveals a year of significant ZEC price appreciation, offset by ongoing risks and uncertainties inherent in the digital asset market.

Summary

• Grayscale Zcash Trust (ZEC) is a Delaware Statutory Trust aiming to reflect the value of ZEC held, less expenses.
• The Trust's shares are quoted on OTCQX under the ticker ZCSH.
• As of December 31, 2024, each Share represented approximately 0.0835 ZEC.
• The Trust's investment objective has not been met, with shares trading at premiums and discounts to NAV.
• The Trust's net assets increased by 146% to $22.04 million as of December 31, 2024, driven by ZEC price appreciation.
• The Sponsor's Fee is 2.5% of the NAV Fee Basis Amount, paid monthly in ZEC.
• The Trust relies on third-party service providers, including Coinbase Custody Trust Company, LLC as custodian.
• The report details various risks, including ZEC price volatility, regulatory changes, and security threats.
• A reorganization occurred on January 1, 2025, with Grayscale Investments, LLC merging into Grayscale Operating, LLC, and Grayscale Investments Sponsors, LLC becoming the sole remaining sponsor effective May 3, 2025.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While there's positive growth in net assets, significant risks and uncertainties associated with the digital asset market and regulatory landscape temper the outlook.

Positives

• Net assets increased significantly due to ZEC price appreciation.
• The Trust has a defined structure and clear investment objective.
• The Sponsor has experience managing other digital asset investment vehicles.
• The Trust uses a custodian, Coinbase Custody Trust Company, LLC, to secure its ZEC.
• The Trust has established security procedures, including offline storage and multiple encrypted private key shards.

Negatives

• The Trust's investment objective has not been met, with shares trading at premiums and discounts to NAV.
• The Shares may trade at a price that is at, above or below the Trusts NAV per Share as a result of the non-current trading hours between OTCQX and the Digital Asset Trading Platform Market.
• The amount of the Trusts assets represented by each Share will decline over time as the Trust pays the Sponsors Fee and Additional Trust Expenses, and as a result, the value of the Shares may decrease over time.
• The Trust is not actively managed and will not take any actions to take advantage, or mitigate the impacts, of volatility in the price of ZEC.
• The Trust does not operate a redemption program and may halt creations from time to time.
• The Trust is not a registered investment company and shareholders do not have the protections afforded by the Investment Company Act.
• The Trust is not a commodity pool and shareholders do not have the protections afforded by the CEA.
• The Trust Agreement includes provisions that limit shareholders voting rights and restrict shareholders right to bring a derivative action.

Risks

• ZEC price volatility could significantly impact the value of the Shares.
• The value of the Shares is dependent on the acceptance of digital assets, such as ZEC, which represent a new and rapidly evolving industry.
• The largely unregulated nature and lack of transparency surrounding the operations of Digital Asset Trading Platforms may adversely affect the value of digital assets and, consequently, the value of the Shares.
• Competition from other digital assets could negatively impact the price of ZEC.
• Regulatory changes or actions by U.S. or foreign agencies may affect the value of the Shares or restrict the use of ZEC.
• A determination that ZEC is a security may adversely affect the value of ZEC and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust.
• Security threats to the Digital Asset Account could result in the halting of Trust operations and a loss of Trust assets.
• The Trust relies on third-party service providers to perform certain functions essential to the affairs of the Trust and the replacement of such service providers could pose challenges to the safekeeping of the Trusts ZEC and to the operations of the Trust.
• The lack of full insurance and shareholders limited rights of legal recourse against the Trust, Trustee, Sponsor, Transfer Agent and Custodian expose the Trust and its shareholders to the risk of loss of the Trusts ZEC for which no person or entity is liable.

Future Outlook

The Trust may operate a redemption program in the future, subject to regulatory approval and Sponsor approval, but currently has no intention of seeking such approval.

Industry Context

The announcement reflects the ongoing evolution and volatility within the digital asset market, with regulatory scrutiny and market dynamics influencing the performance of investment vehicles like Grayscale Zcash Trust.

Comparison to Industry Standards

• The report mentions that ZEC is the 104th largest digital asset by market capitalization as tracked by CoinMarketCap.com.
• The report mentions that the Zcash Network was capable of handling approximately 5 transactions per second, or approximately 40% of the daily transaction volume of the Bitcoin network as of December 31, 2024.
• The report mentions that the Bitcoin network has been, at times, at capacity, which has led to increased transaction fees.
• The report mentions that since January 1, 2022, Bitcoin average daily transaction fees have ranged from $0.38 per transaction on September 8, 2024, to as high as $124.17 per transaction, on April 20, 2024.
• The report mentions that since January 1, 2021, Zcash Network average daily transaction fees have ranged from $0.001 per transaction on February 26, 2023, to as high as $0.29 per transaction, on March 6, 2024.

Legal Proceedings

• Osprey Funds, LLC filed a suit against the Sponsor alleging violations of the Connecticut Unfair Trade Practices Act, with a trial scheduled to begin on July 15, 2025.

Related Party Transactions

• The Trust pays a Sponsor's Fee to Grayscale Investments Sponsors, LLC, a related party.
• Grayscale Securities, LLC, an affiliate of the Trust, acts as the Authorized Participant.
• DCG, the indirect parent company of the Sponsor, holds a minority interest in Kraken, one of the Digital Asset Trading Platforms included in the Index Price.

Stakeholder Impact

• Shareholders are exposed to the risks and rewards of ZEC price fluctuations.
• Shareholders may experience tax liabilities without associated distributions.
• Shareholders are subject to limitations on voting rights and derivative actions.

Next Steps

• The Sponsor will continue to monitor the digital asset market and regulatory environment.
• The Sponsor may seek regulatory approval for a redemption program in the future.
• The Sponsor may seek to list the Shares on NYSE Arca sometime in the future.

Key Dates