10-Q: Grayscale Zcash Trust (ZEC) Reports Increase in Net Assets for Q1 2024

Grayscale Zcash Trust (ZEC) saw an increase in net assets during the first quarter of 2024, driven by ZEC price appreciation and share creations.

Summary

• Grayscale Zcash Trust (ZEC) is a Delaware Statutory Trust that holds Zcash (ZEC).
• The Trust's investment objective is for the value of its shares to reflect the value of the ZEC it holds, less expenses and liabilities.
• The Trust does not currently operate a redemption program.
• For the three months ended March 31, 2024, the Trust's net assets increased to $9.971 million from $8.961 million at the end of 2023.
• This increase was primarily due to ZEC price appreciation and the issuance of new shares.
• The Trust's net increase in net assets resulting from operations was $847,000 for the quarter.
• The Trust's principal market for valuing ZEC is a Trading Platform Market.
• The Sponsor's Fee is calculated as 2.5% of the aggregate value of the Trust's assets, less its liabilities, and is paid monthly in arrears in ZEC.
• As of April 30, 2024, the fair value of ZEC was $20.67 per ZEC.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the Trust experienced growth in net assets, it also faces risks and uncertainties inherent in the cryptocurrency market. The lack of a redemption program and the potential for regulatory challenges temper the positive aspects.

Positives

• The Trust experienced an increase in net assets during the quarter.
• The price of ZEC, the Trust's primary holding, appreciated during the quarter.
• The Trust issued new shares, indicating investor demand.
• The Trust maintains disclosure controls and procedures.

Negatives

• The Trust does not currently operate a redemption program, limiting investor flexibility.
• The Trust's shares have traded at both premiums and discounts to the value of ZEC held by the Trust.
• The Trust is subject to risks associated with investing in ZEC, including market volatility and security risks.

Risks

• The Trust is subject to market risk, liquidity risk, and risks related to its concentration in ZEC.
• The price of ZEC is volatile and subject to various factors, including global supply and demand, theft, and competition from other digital currencies.
• There is a risk that some or all of the Trust's ZEC could be lost or stolen.
• The SEC could determine that ZEC is a security, which could have material adverse consequences.
• The Trust relies on third-party service providers, and disruptions to their operations could adversely impact the Trust.
• The Sponsor and the Trust may be subject to various litigation, regulatory investigations, and other legal proceedings.

Future Outlook

Subject to receipt of regulatory approval and approval by the Sponsor in its sole discretion, the Trust may in the future operate a redemption program. The Trust 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 broader trends in the digital asset market. The approval of Grayscale Bitcoin Trust (BTC) as an exchange-traded product may influence future decisions regarding similar applications for other Grayscale trusts, including ZEC.

Comparison to Industry Standards

• Grayscale offers a variety of single asset and diversified crypto investment products, including Grayscale Basic Attention Token Trust (BAT), Grayscale Bitcoin Trust (BTC), Grayscale Bitcoin Cash Trust (BCH), Grayscale Chainlink Trust (LINK), Grayscale Decentraland Trust (MANA), Grayscale Ethereum Trust (ETH), Grayscale Ethereum Classic Trust (ETC), Grayscale Filecoin Trust (FIL), Grayscale Horizen Trust (ZEN), Grayscale Litecoin Trust (LTC), Grayscale Livepeer Trust (LPT), Grayscale Solana Trust (SOL), Grayscale Stellar Lumens Trust (XLM), Grayscale Decentralized Finance (DeFi) Fund LLC, Grayscale Digital Large Cap Fund LLC, and Grayscale Smart Contract Platform Ex Ethereum (ETH) Fund LLC.
• The performance of Grayscale Zcash Trust can be compared to other single-asset trusts to assess its relative performance within the Grayscale product suite.
• The approval of Grayscale Bitcoin Trust (BTC) as an exchange-traded product sets a precedent for potential future approvals of other Grayscale trusts.

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, but the action was voluntarily dismissed by Alameda without prejudice.
• The Sponsor and/or the Trust may be subject to additional legal proceedings and disputes in the future.

Related Party Transactions

• The Trust pays a Sponsor's Fee to Grayscale Investments, LLC, a related party.
• As of March 31, 2024 and December 31, 2023, 855,943 and 875,407 Shares of the Trust were held by related parties of the Trust, respectively.
• The Sponsors parent, an affiliate of the Trust, holds a minority interest in Coinbase, Inc., the parent company of the Custodian, that represents less than 1.0 % of Coinbase, Inc.s ownership.
• DCG, the parent company of the Sponsor, had an authorization to purchase up to $10 million worth of Shares of the Trust; as of March 31, 2024, $8 million worth of shares had been purchased.

Stakeholder Impact

• Shareholders are exposed to the risks and rewards of investing in Zcash.
• The Sponsor is responsible for managing and administering the Trust.
• The Custodian is responsible for safeguarding the Trust's ZEC.
• Authorized Participants facilitate the creation of shares.

Next Steps

• The Trust will continue to monitor the market and regulatory landscape.
• The Sponsor may consider seeking regulatory approval to operate a redemption program in the future.
• The Trust will continue to issue shares in exchange for ZEC deposits.

Key Dates

Keywords

Grayscale Zcash Trust, Zcash, ZEC, cryptocurrency, digital assets, trust, investment, financial statements, Sponsor's Fee, net assets