Summary Zcash has pulled back more than 50% from its $700+ highs earlier in Q4. Despite this pullback in price, shielded ZEC supply is still near all time highs, nodes are up, and MVRV is still showing strength above 1. ZCSH trades at almost a 20% discount to the underlying ZEC held by the fund. Given Grayscale's intention to convert the fund to a spot ETF, this is an interesting arbitrage opportunity with a digital asset friendly administration. Back in October, I wrote about the Grayscale Zcash Trust ( ZCSH ) when the price of the underlying token had rallied 300% since the start of the year. It was my first time covering the fund in over two years as speculator interest in Zcash ( ZEC-USD ) had dramatically declined following a block space spam attack that badly damaged sentiment, in my view. I detailed that episode here . With the spam attack in the rear-view mirror and the token pulling back nearly 60% from recent highs, is it time for those who have been on the sidelines to entertain taking a stab at ZEC? Zcash Price Drivers To briefly recap, Zcash is a privacy-focused protocol that offers opt-in transparency. While this might make ZEC less desired for cryptocurrency advocates who value privacy-only protocols, I've long felt that optional transparency is a pragmatic approach that grants holders privacy capability without harming exchange presence. The latter of which is necessary for accessibility. Still, the more ZEC that is 'shielded' the better the privacy strength of the protocol itself. My view is the biggest catalyst supporting the recent move in the price of ZEC is the surge in shielded ZEC supply. Shielded ZEC (BlockChair) After briefly surpassing 5 million shielded ZEC, we have seen that level dip down slightly back to 4.8 million shielded ZEC between November and October. Still, there is no doubt 2025 has been a dramatically positive year for the network. Shielded supply has grown by 172% year-over-year as of December 15th and now accounts for nearly 30% of total ZEC supply. Zcash Nodes (ZECHub) Another positive sign is the growth in nodes. This time last year, there were less than 100 total nodes verifying the network. That number is no larger than 200. This is admittedly far lower than a network like Bitcoin ( BTC-USD ) which boasts tens of thousands of nodes. But it is a clear indication of 'adoption' growth. Something that has not necessarily held the highs from November is transactions entering the mempool: Zcash Tx per Sec in Mempool (BlockChair) After Spiking to an all time high on November 13th, Zcash transactions per second have been slowly falling back toward long term averages. But even with the retreat in realized TPS, the fundamentals for Zcash paint an improving picture. Nodes are up. Shielded ZEC is holding firm. And the activity on the chain over the last three months has been better than any other point going back to 2022. And then beyond the harder data, there has clearly been a broader acceptance of Zcash as an idea online. Grayscale ZCash Trust Discount From where I sit, the better trading opportunity today might be with ZCSH shares over direct ZEC exposure given the discount relative to the underlying value of the fund: Grayscale Zcash NAV Discount Calculation ZCSH Price $29.21 ZEC Price $444 ZEC Per Share 0.08155342 ZCSH Value $36.21 ZCSH P/D Rate -19.33% Source: Grayscale, as of 12/19 At a ZEC price of $444 and a market value of $29.21, fund shares closed Friday December 19th at nearly a 20% discount to net asset value. Like many closed-end Grayscale funds, ZCSH has a history of occasionally deviating from its NAV quite substantially. However it should be noted that the fund performed roughly in line with NAV during most of the run up in October. ZCSH NAV vs Market (Grayscale) It wasn't until the early-November top was in that ZCSH shares started to dramatically under-perform ZEC itself. With the current administration being so much more open to digital asset ETFs than the last one, Grayscale has already filed to convert ZCSH to a spot ETF. Given the fact the SEC has already started to approved spot ETFs for assets further down the market ranking than just Bitcoin ( BTC-USD ) and Ethereum ( ETH-USD ), I wouldn't rule out an approval for ZCSH conversion. I actually think 20% is a good enough potential arbitrage to keep some ZCSH on the side while you wait for the gap to close. Risks Short of shielded ZEC outflow or a collapse in nodes, I suspect the worst is likely over in this pullback. But there is certainly the possibility that ZEC may continue to trend lower over the coming weeks/months if we don't get a broad rally in risk markets. ZEC MVRV (CoinMetrics) ZEC's MVRV ratio has come all the way back from 2+ to just 1.3. Importantly, even during the steep pullback from over $700, MVRV never went back below 1. It's entirely possible that it does dip back below 1 in a broader market shakeout. It would be an interesting test of Zcash 'diamond hand' resilience if that were to happen. And it would be worth keeping an eye on the shielded supply in the event MVRV goes back below 1. If shielded supply does decline, it could be an indication of holders cutting losses and leaving. Shielded supply increasing with a sub-1 MVRV would indicate accumulation and be bullish, in my view. Closing Summary Zcash has been one of the fastest horses in the digital asset space over the last several months. The coin itself has had a stellar 2025 return. The clearest risk I see in playing ZCSH for the price arbitrage is that the underlying value of the fund could continue to erode if the price of ZEC continues lower. However, after a 50% reversal from the highs, I expect the coin to find its footing in the $400-$500 range. I think taking even a small stab at ZCSH at 20% discount is compelling. If ZEC goes up, ZCSH should as well. If ZEC stays flat, there is still a potential 20% take on spot conversion potential. Of course, the discount could widen. But I think sentiment on Zcash has improved enough to warrant the speculative flier. I'm going to upgrade ZCSH back to a 'buy.'
