Key takeaways:
- On September 25, Grayscale filed an application to create the ZCSH High Income fund, which is to use options related to the Zcash ETF.
- The fund aims to pay investors every two weeks, but does not guarantee a fixed amount of income.
- The call option selling strategy allows you to generate premiums, but at the same time it may limit investors’ participation in strong ZEC increases.
Grayscale wants to expand its offering of Zcash-related products with an ETF focused not only on exposure to ZEC, but also on regular option income. ZCSH High Income would pay investors every two weeks. However, the strategy may limit potential profits during Zcash surges.
Grayscale wants to make money from Zcash options
The cryptocurrency ETF market is starting to go beyond the simple model of buying a security and tracking its price. The latest example is the proposal of Grayscale, which wants to create a fund that allows investors to obtain regular income related to Zcash.
This is an important distinction. The new fund would not be just another ETF holding Zcash. The investor would buy shares in a product using option strategies, and its results could differ significantly from both the quotations of ZEC itself and the existing ZCSH fund.
The most characteristic element of the project is the frequency of payments. Grayscale intends to make them every two weeks. However, this does not mean that investors will receive a predetermined percentage of capital in each period. The income is to come primarily from options operations. The company plans to use a combination of bought and sold contracts and then sell call options to earn premiums.
The structure is therefore similar to the covered call strategy, but the exposure to Zcash is built using derivatives, and not solely through direct ownership of the asset. The mechanism is relatively simple. The investor or fund selling the call option receives a premium. In return, however, it agrees to limit the potential profit above a certain price level.
In the case of Zcash, this is particularly important. If ZEC increases rapidly, an option income strategy may prevent the ZCSH High Income holder from participating in the entire increase. So the fund can pay out money regularly, but at the same time lag behind Zcash itself during a strong bull market.
Another Grayscale product related to Zcash
The new filing is a direct result of Grayscale’s launch of its existing ZCSH ETF. The fund began trading on NYSE Arca on August 25, and trading in options on its shares began on September 8.
The company previously announced that the assets of the existing ZCSH exceeded USD 1 billion. However, it should be remembered that the increase in the value of the fund’s assets results both from changes in the ZEC price and from the inflow of investor capital.
For now, ZCSH High Income remains only a proposal. The prospectus is preliminary and the fund will not be able to start selling shares before its registration documents come into force.
Grayscale indicated in the documentation a deadline of 75 days from submitting the application, but it depends on the course of the registration process. At this stage, no management fee, ticker symbol or specific stock exchange on which the fund would be listed has been established
