Grayscale has submitted an application for a Zcash exchange-traded fund featuring bi-weekly payouts to shareholders. Rather than holding the cryptocurrency directly, the cash distributions will be generated through options trading.
The regulatory paperwork arrived at the U.S. Securities and Exchange Commission (SEC) on September 25 and could potentially become effective 75 days later in early December.
How Grayscale’s Zcash Income ETF Would Pay Investors
The proposed ZCSH High Income ETF will bypass holding Zcash (ZEC)—a privacy-oriented cryptocurrency—and instead trade options linked to Grayscale’s existing spot fund, The Zcash ETF (ZCSH), per the regulatory filing.
An option functions as a contract that grants a buyer the privilege to trade an asset at a predetermined price. In exchange, the seller receives an upfront fee known as a premium.
By combining purchased call options with sold put options, the fund tracks ZCSH price movements. It then generates the payout funds by selling short-dated calls, typically expiring in a month or less, to gather premiums.
While a minimum of 80% of net assets must remain invested in options on Zcash exchange-traded products, the documentation points out that “high income” guarantees no specific yield, and certain distributions may simply hand back a portion of the investor’s initial capital.
What’s the Catch for Zcash ETF Investors?
Employing a call-selling strategy caps potential upside. Should ZEC surge beyond the selected strike price, the fund forfeits those profits while still enduring the entirety of any downward price movement.
Additionally, the options market for these products is in its infancy; ZCSH launched its trading debut on August 25, with options introduced shortly after on September 8.
Grayscale also highlights an inherent conflict of interest. An affiliate of the fund adviser acts as the sponsor for ZCSH and collects its fee—noted by Yahoo Finance as 2.50%. The filing notes that trading activity from the new fund could boost demand for ZCSH, thereby indirectly increasing those affiliate fees.
Zcash ETF Demand Sets Up the Income Play
ZCSH has experienced consistent financial inflows, transitioning from Grayscale’s 2017 trust carrying roughly $260 million in assets.
Assets climbed to $914.5 million by the week concluding September 18, fueled by $271 million in cumulative inflows. BeInCrypto noted that the single week’s intake of $98.2 million outpaced all other crypto ETFs.
Comparable income strategies are already active within Bitcoin (BTC) markets. Grayscale oversees a Bitcoin covered call ETF, and Goldman Sachs submitted a filing for a Bitcoin premium income fund back in April.
At present, specific details for the upcoming fund—including its ticker symbol, exchange listing, fee structure, and sub-adviser—are left blank in the filing.
Frequently Asked Questions
When was the Zcash Income ETF filed with the SEC?
The filing reached the U.S. Securities and Exchange Commission (SEC) on September 25, with an effective date possibly arriving 75 days later in early December.
Does the proposed fund hold actual Zcash?
No, the ZCSH High Income ETF does not hold Zcash (ZEC). Instead, it trades options tied to Grayscale’s existing spot fund, The Zcash ETF (ZCSH).
How are investor payouts generated?
The fund mimics ZCSH price movements by pairing purchased call options with sold put options, and then selling short-dated calls (typically one month or less) to collect upfront fees called premiums.
What are the main risks for investors?
Selling calls limits potential upside gains if ZEC rallies past the strike price while leaving the fund fully exposed to price drops. Furthermore, the options market is very new, and the strategy guarantees no specific yield.
