Grayscale’s Zcash ETF Proposal Sparks 'GBTC 2.0' Discussion: Will It Cause a Crash or a Surge?

Delphi Digital's Simon Shockey suggests that the focus on Zcash (ZEC) should extend beyond its rising price, drawing parallels to Grayscale's Bitcoin Trust (GBTC). As Grayscale plans to convert its Zcash trust (ZCSH) into an exchange-traded product (ETP), it may create a GBTC-like situation where ZCSH is trading at a discount, presenting an investment opportunity. Shockey explores potential benefits for investors if this shift aligns with regulatory approval and market demand.

Key Takeaways

Zcash (ZEC) has shown significant price momentum recently, but analysts suggest the structural changes in Grayscale's trust are more critical.
Grayscale's Zcash trust is poised for a shift to an exchange-traded product (ETP), similar to the previous GBTC experiences.
A notable price discrepancy exists, with ZCSH trading at about a 20% discount compared to its net asset value (NAV).
Regulatory approval could tighten this discount, offering an opportunity for profit if investors buy at the current discount.
Increased demand for Zcash could arise from institutional investors who cannot hold ZEC directly.

Zcash news

The Zcash Investment Landscape: Examining the GBTC Playbook

Delphi Digital researcher Simon Shockey emphasizes that the current narrative surrounding Zcash (ZEC) is more about its trust setup than its market price. He indicates that a significant dynamic has emerged with Grayscale's proposed Zcash trust (ZCSH). “The most interesting thing about ZEC today is not the price,” he remarked on X, referring to a recent emergence of a GBTC-like discount dislocation concerning ZCSH.

Shockey points out that the Zcash trust's potential can be understood better when viewed through the lens of Grayscale's Bitcoin product. He highlights that “funds were built, and later blown up, on two different GBTC trades.” Initially, the premium arbitrage allowed accredited investors to subscribe to GBTC at net asset value (NAV) with a six-month lock, all while the product traded significantly above NAV in the public markets.

Can Zcash Follow a Similar Path as GBTC?

The trading strategy, Shockey notes, became almost automatic: “subscribe at NAV, lock for six months, hedge BTC exposure with CME shorts, sell GBTC at a premium, pocket the spread and lever it.” This approach gained wide adoption among various investor types—from traditional finance family offices to crypto-native desks—until it eventually faltered.

In February 2021, after years of trading at a premium, GBTC experienced a significant shift to a discount. Investors caught in the middle of the lockup now faced an overvalued investment, struggling with a growing discount that reached “-30%, -40%, even -45%.” Shockey describes this shift as “career/cycle-ending almost overnight,” contributing to the downfall of major players like 3AC, BlockFi, Genesis, and DCG.

However, he notes that GBTC had a second act. Once the discount stabilized, a new trading strategy surfaced: “buy GBTC at a discount, wait for regulatory clarity or ETF approval, redeem at NAV, capture the collapse in the discount.” This approach ultimately rewarded those value-oriented funds that initially faced challenges.

Shockey believes a similar opportunity is emerging with Grayscale’s Zcash trust. “This morning, Grayscale filed to convert ZCSH into an ETP,” he stated, outlining how this development may initiate a GBTC-style discount trade.

Currently, Shockey notes, ZCSH trades around $33.50 per share, significantly lower than its recent NAV of about $41 per share—indicating a nearly 20% discount. “Every ZCSH share is priced materially below the ZEC it represents,” he added, indicating that investors effectively gain ZEC exposure at around $410 per ZEC, while the market price is notably higher.

The critical change comes with the shift from a closed trust to an ETP that permits redemptions. “The current trust structure does not allow redemptions,” Shockey explains. If regulators approve the ETP, he anticipates a tightening of the discount, similar to what occurred with GBTC as ETF approval became likely. While he stresses that it’s “not guaranteed” and “not the same trade,” the patterns are arguably similar.

From an investment standpoint, Shockey believes that “the discount closing is the cleanest angle.” He advises buying ZCSH at a 20% discount with the intention of selling once prices converge. Additionally, should ZEC’s narrative gain traction during the approval process, investors could experience added upside.

A ZEC ETP could bring fresh interest from institutional investors who cannot currently hold ZEC directly due to custody and mandate constraints. Shockey believes that an ETP could encourage new capital inflows, thereby tightening discounts.

He also mentions relevant downstream narratives—like Bitcoin's privacy issues—which are gaining attention and could bolster Zcash's appeal. As commentary from industry figures, such as VanEck’s CEO, connects Bitcoin's weaknesses to the potential of ZEC, the discussion is spread beyond the crypto community.

In summary, Shockey underscores the time-sensitive nature of this investment: “If markets keep leaning toward the idea that ZEC is absorbing the role Bitcoin stepped away from, then ZCSH becomes the cleanest vehicle to express that view.” He points out the potential for ZEC exposure in public markets, with an enticing discount that exists only until the ETP gets approved. As of now, Zcash is trading at $509.84.

ZCash price ZCash falls below the 1.414 Fib, 1-week chart | Source: ZECUSDT on TradingView.com