Zcash and the ETF issue: opportunities versus risks in 2025

The Heart of the Debate

Since the proposal in November 2025 to convert the Grayscale Zcash Trust into an exchange-traded fund (ETF), the privacy community has been divided into two camps. On one side, proponents see ETF shares as a gateway to institutional capital and improved liquidity. On the other, critics warn that such a move could undermine the decentralization and core values of Zcash (ZEC).

What’s at Stake: The Numbers Behind the Conversion

The formation of ETF shares would involve a portfolio of over 394,000 ZEC with an estimated value of approximately $197 million. The current Grayscale trust manages about $205.7 million through 4.83 million outstanding shares with a 2.5% expense ratio.

At the time of application, the trust was trading significantly below its net asset value: while the NAV per share was around $42.59, the market price was $35.05 per share — a discount of over 18%. This indicates expectations of inflow when the product structure changes.

Zcash’s current market position tells a different story. With a current price of $427.03 and a circulating market capitalization of $7.04 billion, Zcash has become a substantial project. Currently, 16.48 million ZEC tokens are in circulation, with a 24-hour trading volume of $13.86 million and a recent increase of 2.78%.

Why Institutional Exposure Brings Both Benefits and Risks

The Appeal of ETF Structures

Exchange-traded fund shares offer investors a way to gain exposure to ZEC without holding the tokens directly. For institutional players, this lowers the barrier; regulations and custody are standardized, and exposure fits within existing investment frameworks.

Moreover, ETF shares can break through liquidity barriers. Better market depth and faster price discovery encourage capital inflows — benefits that have historically proven successful with other crypto products.

The Concentration Pitfall

With approximately 2.4% of circulating ZEC held in the Grayscale trust, institutional concentration is already significant. Converting to ETF shares could further increase this concentration, especially if custody is centralized. Large holdings of ZEC by a few custodians increase systemic risk and can distort market dynamics.

Technical and Privacy-Related Obstacles

Shielded Transactions versus Operational Reality

Zcash distinguishes itself through the possibility of shielded transactions based on zk-SNARKs — a cryptographic protocol that offers privacy features. In practice, however, most activities occur via transparent addresses, especially where exchanges implement KYC policies.

ETF shares require the underlying assets to be held in custody by regulated entities. This could mean transactions occur through unshielded wallets, compliance reporting to regulators becomes mandatory, and privacy features are practically limited.

The Dilemma Between Compliance and Core Values

Privacy coins are designed with confidentiality as a core principle. Institutionalization via ETF shares introduces compliance requirements that directly oppose that principle. Regulators like the SEC impose additional screening for privacy-oriented assets due to concerns around anti-money laundering (AML) and Know Your Customer (KYC) obligations.

Market Mechanisms and Selling Pressure

A common risk in trust-to-ETF transitions concerns the impact of redemptions and market-making shifts. When large institutional flows reorganize, sudden waves of selling can exert downward pressure on ZEC.

Historical examples show that liquidity shocks and volatility jumps are not unlikely when large holders adjust their positions or when trust structures are reconfigured.

Regulatory Landscape in 2025

Regulators have intensified their focus on crypto instruments. In 2025, central bank digital currencies (CBDC’s) play a role in the political debate around privacy and oversight. This creates pressure on regulators to scrutinize privacy coins critically.

Approval of a Zcash ETF in the United States could set a precedent but might also lead to stricter compliance requirements for custodians and market makers.

Institutionalization in a Broader Context

The increased institutional attention to crypto — partly through ETF shares and spot funds — is a trend that continued into 2024-2025. Capital-rich periods generate rapid inflows into regulated products. At the same time, this movement concentrates influence among a few financial players and custodians who determine trading activities and storage.

Monitoring Points for Investors and Stakeholders

For those following this issue, the following indicators are relevant:

• Supply Concentration: monitor the share of institutional wallets in total supply.
• NAV Discrepancies: large discounts or premiums signal expectations of selling pressure.
• Privacy Metrics: the percentage of shielded transactions and growth of the shielded pool remain crucial.
• Regulatory Updates: commitments and conditions from regulators.
• Custody Models: which custodians operate and under what reporting obligations.

The Dilemma Summarized

A Zcash ETF presents conflicting opportunities and risks. ETF shares can increase liquidity and reach a broader investor base. At the same time, institutionalization can amplify concentration risks, limit privacy operations, and undermine decentralization.

By 2025, all involved parties — investors, developers, and regulators — are better informed than a few years ago. This makes the debate more technical and regulatory.

A responsible assessment requires ongoing monitoring of on-chain data, trust reports, and regulatory positions. Only then can stakeholders fully gauge the impact of this potential transaction.