It’s now possible for some investors — wealthy ones — to obtain exposure in traditional, tax-advantaged investment accounts to hot privacy coin Zcash.
Thursday, Grayscale Investments, LLC, the asset manager sponsoring investment vehicles for two of the top cryptocurrencies, Bitcoin and Ethereum Classic, launches the Zcash Investment Trust, the only security invested solely in Zcash, which launched a year ago and now sports a price of $250 and a market capitalization of $650 million.
The company behind Zcash, Zerocoin Electric Coin Company, already counts JPMorgan Chase as a customer, indicating the value financial institutions may see in technology that can take advantage of a distributed ledger without revealing key details of the trade, such as who the sender and recipient are and the value of the transaction.
Barry Silbert, CEO of Digital Currency Group, Grayscale's parent firm, said, "This year has demonstrated that digital currency is a new asset class investors are excited about that is not correlated with other asset classes. By expanding the universe of products to invest in this asset class, we think we’ll bring new investors in."
The company chose Zcash for its third digital currency investment product because “we are excited about the potential for a privacy-focused digital currency and blockchain," said Silbert. "There’s a lot of utility and demand for that.” The firm had also found high investor interest in a traditional security based on Zcash that could be held in IRAs and 401(k)s.
As a passive investment vehicle, the Zcash Investment Trust aims to reflect the value of the amount of Zcash held by the Trust -- with each share representing 0.1 Zcash. At 4pm Eastern Time, it calculates that using the TradeBlock ZEC Composite Reference Rate published by the provider of institutional trading tools for digital currencies, and subtracts 2.5% for the Trust's expenses.
To begin, purchasers of the Zcash Investment Trust (who must be accredited, meaning their income must be at least $200,000 for each of the previous two years or their net worth must exceed $1 million) will not be able to redeem or sell their shares on a secondary market.
However, as Grayscale did for the Bitcoin Investment Trust, which trades over the counter on the OTCQX forum under the ticker symbol GBTC, the company intends to make it available for trading on a secondary market, where an investor could sell it after a year lock-up period.
As seen with GBTC, the price on that market may diverge from the price at which the security is sold to accredited investors, because the limited supply may not be able to meet all demand. Over the course of its history, GBTC has traded at a premium to Bitcoin of as much as 100%, said Silbert.
Packaging digital currencies into traditional investment vehicles has worked out quite well for Grayscale, which is likely one of the fastest-growing asset managers in history, growing from $164 million as of December 31, 2016 to $1.34 billion as of Wednesday -- a 717% year-to-date surge -- mostly fueled by the 765% rise in Bitcoin itself.
The fund has already been seeded with $11.5 million, according to Silbert. After the fund was filed with the SEC, the price of Zcash, which had been around $220, jumped to about $250 per coin.
