Grayscale has filed an application to create a Zcash ETF that will pay dividends to shareholders every two weeks. The application was submitted to the U.S. Securities and Exchange Commission (SEC) on September 25 and may become effective in 75 days – in early December. The projected ETF is called ZCSH High Income and will not hold Zcash (ZEC), which is a privacy-focused cryptocurrency. Instead, it will trade options linked to the existing Grayscale Zcash ETF (ZCSH). An option – is a contract that gives the buyer the right to trade an asset at a set price. The seller receives an upfront payment known as a premium.
The fund will mimic the price movements of ZCSH by combining purchased call options with sold put options. It will then sell short-term options, mostly with a term of one month or less, to collect premiums. These premiums will fund the payouts. The application states that at least 80% of net assets must be in options on Zcash exchange products. However, the application also notes that “high income” does not promise fixed returns, and some payouts may simply return part of investors' capital. To be aware, selling calls limits potential profits. If ZEC rises above the set price, the fund will miss out on those gains but will still incur losses if prices fall. The options market is also new; ZCSH began trading on August 25, and options started trading on September 8. Grayscale also notes a conflict of interest. An affiliate of the fund's advisor sponsors ZCSH and receives a fee, which, according to Yahoo Finance, is 2.50%. The application states that trading the new fund may increase demand for ZCSH and indirectly lead to higher fees for this affiliated company.
The ZCSH fund attracts steady investments, converting from Grayscale's 2017 trusts with approximately $260 million in assets. In the week ending September 18, the fund's assets reached $914.5 million after cumulative inflows of $271 million. In just one week, the fund attracted $98.2 million, the highest among all crypto ETFs, according to BeInCrypto data. Similar income products already exist for Bitcoin (BTC). Grayscale manages a call-covered Bitcoin ETF, and Goldman Sachs filed for a Bitcoin premium income fund in April. The ticker, exchange, fees, and sub-advisor of the new fund are not yet specified in the application.
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