Key highlights:
Asset manager Grayscale is further strengthening its focus on Zcash. In the latest move, the company has filed for a Zcash High Income ETF, which could generate regular income for investors. The filing comes shortly after Grayscale proposed a 2x leveraged Zcash ETF, adding to its growing lineup of products linked to ZEC.
Grayscale files new Zcash High Income ETF
Grayscale has filed for an income-focused exchange-traded fund linked to Zcash. The proposed ZCSH High Income ETF is designed in a way that investors can earn income every two weeks. The SEC filing stated that unlike the spot Zcash ETF, this fund will not hold the token directly. Instead, it would use options linked to ZCSH, Grayscale’s spot Zcash ETF.
Notably, Grayscale’s Zcash High Income ETF will use a synthetic covered call strategy to generate income. It would buy call options and sell put options to get exposure to the price movement of the Zcash ETF. Then, it would sell short-term call options, with expiration periods of one month or less.
After selling these call options, the fund would generate money, which comes in the form of premiums. These premiums would be used to support the fund’s regular payouts to investors. Reportedly, about 80% of the fund’s net assets would be invested in options tied to a ZEC exchange-traded product.
ZEC strategy comes with key risks
While selling call options helps the ETF generate income, it also has some limits. When the Zcash price rises sharply, the fund may not fully benefit from it if the price moves above the strike price of the calls it has sold. In contrast, if the ZEC price falls, the fund would still be exposed to the downside, facing losses.
The options market linked to the Zcash High Income ETF is also relatively new. While Grayscale’s ZCSH ETF began trading on August 25, options started trading on September 8. This provided the ETF only a short trading history to analyze. According to the SEC filing,
“‘High income’ as used in the Fund’s name means that the Fund seeks to generate substantial option-premium income relative to the value of its net assets; it does not mean that the Fund will achieve any particular distribution rate, yield or level of income. The amount and character of the Fund’s distributions will vary, and there is no assurance that any distribution level will be sustained.”
Grayscale is expanding its Zcash ETF lineup
ZCSH has drawn steady money since the company converted its Zcash Trust into a spot ETF. While the fund started with roughly $260 million in assets, it reached $914.5 million by the week ending September 18. The fund also recorded around $98.2 million in inflows that week.
Grayscale has also filed for a 2x Zcash ETF on September 9. The project seeks leveraged daily exposure to ZEC and is intended as a short-term trading product. Now, the asset manager is attempting to launch another Zcash fund, which takes another approach.
Source:: Grayscale Expands Zcash Push With New High-Income ETF Filing