Grayscale’s Zcash ETF Hits $1 Billion but Most of It Isn’t New Money

The Milestone, in One Tweet

“$1B in AUM,” Grayscale posted late Thursday, referring to its ZCSH offering as “the world’s first Zcash fund.” And while the milestone is real, there is a caveat to the number which will be outlined later in the article.

The fund started trading on NYSE Arca on Aug. 25, and within two weeks it had topped $500 million. Doubling in about 16 days is fast by any ETF standard but “assets” and “inflows” are not the same number.

Where Did the Billion Dollar figure Emanate From?

As of Sept. 24, Sosovalue data showed $1 billion in net assets against $306.12 million in cumulative net inflows. Put another way, new money accounted for less than 30% of the fund’s value that day.

The rest comes from two places:

• First, ZCSH was not built from scratch but is simply the renamed version of Grayscale Zcash Trust, a vehicle formed in October 2017, so it arrived on NYSE Arca already holding years of ZEC.
• Second, ZEC has gotten much more valuable recently. The token is trading around $1,540 as of today, roughly double its price when the ETF debuted.

When the underlying asset doubles, a fund that already holds a big pile of it multiplies too, even before a single new share is created.

The DCG Footnote

Even the inflow figure needs an asterisk as earlier this month, DCG International Investments (Grayscale’s parent group) acquired about $100 million of ZCSH shares “in exchange for 85,705.32563297 ZEC tokens,” according to Grayscale’s Form 8-K filing. The same filing notes the deal was first discussed at roughly 200,000 ZEC, which shows how far the token ran between announcement and settlement.

Take that $100 million in-kind swap out, and fresh outside cash comes to roughly $200 million of the $1 billion headline.

Why Is ZEC Pulling Capital Anyway?

Outside money is still arriving, and the rally has drawn fresh products. One session from last week brought the fund $46.6 million in inflows, while at the same time 21shares listed Europe’s first ZEC exchange-traded product as its price broke $1,600.

Moreover, Alliance co-founder Qiao Wang said on the Good Game Podcast that Zcash is “Bitcoin that can change,” adding that ZEC’s ability to adapt to quantum computing and privacy demands is its edge, while Bitcoin’s ossification gives it stronger guarantees on fixed supply.

However, Wang did later concede that his firm’s bitcoin holdings remain far larger than ZEC, which they treat as a hedge.

Not everyone is sold, though, with F2pool co-founder Chun Wang calling ZEC’s rally mainly narrative-driven and questioned its early reward allocation, funding model and security history.

What Changes on Sept. 30?

Grayscale’s 3-for-1 forward split applies to holders of record at the close on Sept. 28 and takes effect before the open on Sept. 30. Net asset value (NAV) per share should drop to about one-third, with three times as many shares outstanding. The dollar value of each holding stays the same, with the move being designed to lower the share price for smaller buyers.