Grayscale Zcash ETF plans to add to its list of offerings because Grayscale has filed with the SEC to introduce a new ETF whose aim would be to earn income from option contracts on Zcash exchange-traded products.
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As per the documents released on September 25, the fund, known as the ZCSH High Income ETF, will strive to pay dividends to investors twice every week. The fund, however, will differ from the ordinary spot ETF because it will not hold Zcash (ZEC).
However, rather than the suggested strategy utilizing options associated with Grayscale’s Zcash ETF, the fund could simply be allowed to generate its own income through the premium collection of options.
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Grayscale Zcash ETF Uses Options to Generate Income
It should be noted that the suggested fund will not buy any Zcash cryptocurrency but will rather get its exposure to the exchange-traded products via options. As specified in the filing, at least 80 percent of the fund’s net assets will be allocated to options on Zcash exchange-traded products.
The strategy of the fund involves buying call options and selling put options. It aims to create an exposure similar to Grayscale’s already existing Zcash ETF and earn some extra income.
These call options would be sold by the fund and would normally have maturities of one month or less. This would enable the fund to get premiums out of its options sale, which in turn would form the basis of the suggested biweekly distribution to shareholders.
Options refer to derivatives and involve the right but not the obligation to purchase or sell an underlying security at a specific price. The seller of such an option earns a premium at the outset.
No Fixed Yield Guaranteed
Although the ETF is named Grayscale Zcash ETF High Income, the returns or the amounts of distributions will not be guaranteed to any particular investor at all.
In addition, the document mentions that there may be a possibility of a return of capital in some cases in the form of distributions. What this means is that the distributions may partly consist of the investor’s own investments rather than being profits earned from the strategy.
It is worth noting that high distribution rates do not indicate earnings.
Grayscale Expands Its Zcash ETF Offering
The latest filing follows a period of substantial growth for Grayscale’s current Zcash ETF. With Grayscale’s Zcash ETF now valued at about $1 billion in asset value, it is clear that there is significant demand for investment vehicles offering exposure to ZEC in a regulated way.
Grayscale has also mentioned that Zcash is one of those digital assets which could be the next big thing in digital finance.
The suggested income-based product will thus serve as yet another layer to the Grayscale Zcash product strategy, whereby the latter will not be limited to just following the performance of the underlying but will instead attempt to transform the market exposure to Zcash into regular cash flows through the use of options.
The Grayscale Zcash ETF was filed with the SEC on September 25. Given the estimated timeline for the regulatory approval process, the fund might become effective within 75 days of the filing, which might translate into an effective date in early December.
In the event that the project goes ahead, this will be yet another means for investors to invest in the Zcash market, but through the options approach rather than buying the ZEC directly.
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