10-Q: Grayscale Zcash Trust (ZEC) Reports Q3 2024 Results: Net Assets Increase Amid ZEC Price Appreciation

Grayscale Zcash Trust (ZEC) saw an increase in net assets during Q3 2024, driven by a rise in the price of ZEC and additional share creations.

Summary

• Grayscale Zcash Trust (ZEC) is a Delaware Statutory Trust that holds Zcash (ZEC).
• The Trust's investment objective is for its share value to reflect the value of ZEC held, less expenses.
• The Trust does not currently operate a redemption program.
• As of September 30, 2024, the Trust's net assets were $10.769 million, compared to $8.961 million at December 31, 2023.
• The number of shares outstanding increased from 3,777,700 at the end of 2023 to 4,568,000 as of September 30, 2024.
• The principal market net asset value per share was $2.36 as of September 30, 2024, and $2.37 as of December 31, 2023.
• For the three months ended September 30, 2024, the Trust reported a net increase in net assets resulting from operations of $2.779 million, compared to a net decrease of $2.061 million for the same period in 2023.
• For the nine months ended September 30, 2024, the Trust reported a net increase in net assets resulting from operations of $0.177 million, compared to a net decrease of $3.701 million for the same period in 2023.
• The Trust's expenses consist primarily of the Sponsor's Fee, which is 2.5% of the aggregate value of the Trust's assets.
• The Trust is subject to market risk, liquidity risk, and risks related to its concentration in ZEC.
• The Sponsor believes the Trust is properly treated as a grantor trust for U.S. federal income tax purposes.

Sentiment

Score: 7

Explanation: The sentiment is cautiously positive. The Trust's net assets increased, and it experienced a net increase in net assets from operations. However, the Trust is subject to significant risks related to the volatility of ZEC and the lack of a redemption program.

Positives

• The Trust's net assets increased, driven by ZEC price appreciation and share creations.
• The Trust experienced a net increase in net assets resulting from operations for both the three and nine months ended September 30, 2024, compared to net decreases in the prior year periods.
• The price of ZEC increased during the quarter, positively impacting the Trust's value.

Negatives

• The Trust does not currently operate a redemption program, limiting investor flexibility.
• The Trust's performance is highly dependent on the price of ZEC, which is volatile and subject to various risks.
• The Trust's shares have historically traded at premiums and discounts to the value of ZEC held, indicating market inefficiencies.
• The Trust incurs a Sponsor's Fee of 2.5% of assets, which reduces returns.

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 influence by many factors.
• There is a risk of loss or theft of the Trust's ZEC.
• Incorrectly executed ZEC transactions could adversely affect the investment.
• The SEC could determine that ZEC is a security, which could have material adverse consequences.
• Disruptions to the Trust's service providers could negatively impact operations.
• The Trust and Sponsor 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

This report provides insight into the performance of a single-asset investment vehicle focused on Zcash (ZEC), a privacy-focused cryptocurrency. The performance is directly tied to the price movements of ZEC and is influenced by broader market trends in the digital asset space.

Comparison to Industry Standards

• It's difficult to directly compare Grayscale Zcash Trust to industry standards due to the unique nature of single-asset cryptocurrency trusts.
• However, its performance can be benchmarked against the performance of Zcash itself and other similar single-asset trusts like Grayscale Bitcoin Trust (GBTC) or Grayscale Ethereum Trust (ETHE).
• The Sponsor also acts as the sponsor and manager of other investment products including Grayscale Aave Trust (AAVE), Grayscale Avalanche Trust (AVAX), Grayscale Basic Attention Token Trust (BAT) (OTCQB: GBAT), Grayscale Bitcoin Trust (BTC) (NYSE Arca: GBTC), Grayscale Bitcoin Cash Trust (BCH) (OTCQX: BCHG), Grayscale Bitcoin Mini Trust (BTC) (NYSE Arca: BTC), Grayscale Bittensor Trust (TAO), Grayscale Chainlink Trust (LINK) (OTCQX: GLNK), Grayscale Decentraland Trust (MANA) (OTCQX: MANA), Grayscale Ethereum Trust (ETH) (NYSE Arca: ETHE), Grayscale Ethereum Classic Trust (ETC) (OTCQX: ETCG), Grayscale Ethereum Mini Trust (ETH) (NYSE Arca: ETH), Grayscale Filecoin Trust (FIL) (OTC Markets: FILG), Grayscale Horizen Trust (ZEN) (OTCQX: HZEN), Grayscale Litecoin Trust (LTC) (OTCQX: LTCN), Grayscale Livepeer Trust (LPT) (OTCQX: GLIV), Grayscale MakerDao Trust (MKR), Grayscale NEAR Trust (NEAR), Grayscale Solana Trust (SOL) (OTCQX: GSOL), Grayscale Stacks Trust (STX), Grayscale Stellar Lumens Trust (XLM) (OTCQX: GXLM), Grayscale Sui Trust (SUI), Grayscale XRP Trust, Grayscale Decentralized AI Fund LLC, 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.

Legal Proceedings

• Osprey Funds, LLC filed a suit against the Sponsor alleging violations of the Connecticut Unfair Trade Practices Act.
• The Sponsor believes this lawsuit is without merit and intends to vigorously defend against it.
• As of the date of this Quarterly Report, the Sponsor does not expect the foregoing proceedings to have a material adverse effect on the Trusts business, financial condition or results of operations.

Related Party Transactions

• The Trust pays a Sponsor's Fee to Grayscale Investments, LLC, calculated as 2.5% of the aggregate value of the Trust's assets.
• DCG, the indirect parent company of the Sponsor, had a share purchase authorization of up to $10 million.
• The Sponsors indirect 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.

Stakeholder Impact

• Shareholders are exposed to the price volatility of ZEC.
• The Sponsor benefits from the Sponsor's Fee.
• The Custodian and Transfer Agent receive fees for their services.

Key Dates

Keywords

Grayscale Zcash Trust, Zcash, ZEC, Digital Currency, Cryptocurrency, Trust, Sponsor, Financial Results, Net Assets, Principal Market NAV