Grayscale has filed with the U.S. Securities and Exchange Commission for a new Zcash income ETF that would distribute payments to shareholders every two weeks. The filing was submitted on September 25 and could take effect in early December, approximately 75 days later.
The proposed ZCSH High Income ETF would not hold Zcash directly. Instead, it would trade options tied to Grayscale's existing spot Zcash ETF (ZCSH). The fund would use a strategy of pairing bought call options with sold put options to track the price movements of ZCSH, then sell short-dated calls—mostly one month or less—to collect premiums that fund the biweekly payouts.
How the Strategy Works
At least 80% of the fund's net assets must sit in options on Zcash exchange-traded products. However, the filing notes that the "high income" designation carries no guaranteed yield, and some distributions could represent a return of investor capital rather than genuine income.
Trade-offs for Investors
Selling call options caps potential gains. If Zcash prices rise above the chosen strike price, the fund would miss those gains while still absorbing full losses if prices fall. This asymmetric risk profile is inherent to the covered call strategy.
The timing also presents a consideration: ZCSH began trading on August 25, and options on the fund only started trading on September 8, making the options market relatively new.
Grayscale disclosed in the filing that an affiliate of the fund's adviser sponsors ZCSH and receives its management fee, listed at 2.50%. The fund's trading activity could increase demand for ZCSH and indirectly benefit that affiliate's fees.
Context and Precedent
ZCSH has attracted significant inflows since its conversion from Grayscale's 2017 trust. The fund held approximately $260 million in assets at conversion and grew to $914.5 million by the week ending September 18, with $271 million in cumulative inflows. In that week alone, ZCSH led all crypto ETFs with $98.2 million in inflows.
Similar income-focused products already exist for Bitcoin. Grayscale operates a Bitcoin covered call ETF, and Goldman Sachs filed for a Bitcoin premium income fund in April.
Details including the new fund's ticker, exchange listing, fee structure, and sub-adviser have not yet been specified in the filing.
