10-Q: Grayscale Horizen Trust (ZEN) Reports Net Asset Decrease in Q2 2025 Amidst Market Volatility

Grayscale Horizen Trust (ZEN) experienced a decrease in net assets during the quarter ended March 31, 2025, primarily due to a decline in the price of Horizen (ZEN).

Summary

• Grayscale Horizen Trust (ZEN) reported its financial results for the quarter ended March 31, 2025.
• The Trust's net assets decreased to $8.408 million as of March 31, 2025, compared to $25.713 million at the beginning of the period.
• The decrease was primarily driven by a decline in the price of ZEN, from $28.91 per ZEN as of December 31, 2024, to $8.81 per ZEN as of March 31, 2025.
• The Trust experienced a net realized and unrealized loss on investment in ZEN of $18.139 million for the three months ended March 31, 2025.
• The Trust's investment objective is for the value of its shares to reflect the value of the ZEN it holds, less expenses and liabilities.
• The Trust's shares are qualified for public trading on the OTCQX Best Market under the symbol HZEN.
• The Sponsor's Fee is calculated as 2.5% of the aggregate value of the Trust's assets, less its liabilities, and is payable in ZEN monthly in arrears.
• During the quarter, the Trust issued 832,100 shares in exchange for ZEN deposits.
• The Trust is not currently operating a redemption program.
• The Trust relies on third-party service providers, including Coinbase Custody Trust Company, LLC, for custody of its ZEN.

Sentiment

Score: 4

Explanation: The sentiment is slightly negative due to the significant decrease in net assets and the realized/unrealized losses. However, the continued creation of shares and the potential for a future redemption program offer some positive aspects.

Positives

• The Trust issued 832,100 shares in exchange for ZEN deposits during the quarter, indicating continued investor interest.
• The Trust maintains disclosure controls and procedures to ensure accurate financial reporting.
• The Trust has a defined process for determining its principal market and fair value of ZEN.
• DCG, the indirect parent company of the Sponsor, has an authorization to purchase up to $10 million worth of Shares of the Trust, although no purchases were made during the reported period.

Negatives

• Net assets decreased significantly due to the decline in the price of ZEN.
• The Trust experienced a net realized and unrealized loss on investment in ZEN of $18.139 million for the three months ended March 31, 2025.
• The Trust's shares have traded at both premiums and discounts to the value of the ZEN held by the Trust.
• The Trust is subject to various risks including market risk, liquidity risk, and other risks related to its concentration in a single asset, ZEN.

Risks

• The price of ZEN is volatile and subject to influence by many factors.
• The Trust's ZEN could be lost or stolen.
• Incorrectly executed ZEN transactions could adversely affect an investment in the Shares.
• The Trust relies on third-party service providers, and disruptions to their business operations could have an adverse impact.
• The Trust and the Sponsor may be subject to various litigation, regulatory investigations, and other legal proceedings.
• A determination that ZEN is a security under federal or state securities laws may adversely affect the value of ZEN and an investment in the Shares.
• The Trust could be considered an unregistered investment company under the Investment Company Act of 1940, which could necessitate the Trust's liquidation.

Future Outlook

Subject to receipt of regulatory approval from the SEC and approval by the Sponsor in its sole discretion, the Trust may in the future operate a redemption program. The Trust currently has no intention of seeking regulatory approval to operate an ongoing redemption program.

Industry Context

This report provides insight into the performance of a single-asset investment product focused on Horizen (ZEN), a cryptocurrency. The results reflect the volatility inherent in the cryptocurrency market and the challenges of tracking the value of a digital asset through a traditional investment vehicle. The report also highlights the evolving regulatory landscape for digital assets and the potential impact on the Trust's operations.

Comparison to Industry Standards

• It's difficult to directly compare Grayscale Horizen Trust's performance to industry standards due to the unique nature of single-asset cryptocurrency trusts.
• However, similar Grayscale products like Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Trust (ETHE) face similar challenges in tracking the underlying asset's price and managing premiums or discounts.
• Unlike ETFs, these trusts do not have a redemption mechanism, which can lead to significant deviations from NAV.
• The 2.5% sponsor fee is relatively high compared to traditional ETFs but is common among cryptocurrency investment products due to the complexities of custody and management.

Legal Proceedings

• Osprey Funds, LLC filed a suit in Connecticut Superior Court against the Sponsor alleging that statements the Sponsor made in its advertising and promotion of Grayscale Bitcoin Trust violated the Connecticut Unfair Trade Practices Act (CUTPA).
• The Court granted the Sponsors motion for summary judgment on February 7, 2025.
• On March 31, 2025, Osprey filed a Notice of Appeal of the summary judgment decision and the Courts denial of the motion for reargument to the Connecticut Appellate Court.
• The Sponsor and Grayscale Bitcoin Trust believe that judgment was properly granted in their favor and intend to vigorously defend against any attempts to overturn the judgment.

Related Party Transactions

• The Trust pays a Sponsors Fee to the Sponsor, calculated as 2.5% of the aggregate value of the Trusts assets, less its liabilities.
• As of March 31, 2025 and September 30, 2024, 3,249,128 and 3,372,214 , Shares of the Trust were held by related parties of the Trust, respectively.
• DCG, the indirect parent company of the Sponsor, has an authorization to purchase up to $10 million worth of Shares of the Trust.

Stakeholder Impact

• Shareholders are impacted by the decrease in net asset value and the volatility of the ZEN price.
• The Sponsor is responsible for managing the Trust and ensuring compliance with regulations.
• The Custodian is responsible for safeguarding the ZEN held by the Trust.
• Authorized Participants facilitate the creation and potential redemption of Shares.

Next Steps

• The Trust will continue to monitor the market for ZEN and manage the Trust's assets.
• The Sponsor will continue to evaluate the possibility of operating a redemption program in the future, subject to regulatory approval.
• The Trust will continue to comply with all applicable regulations and reporting requirements.

Key Dates

Keywords

Grayscale Horizen Trust, ZEN, Horizen, Digital Currency, Cryptocurrency, Trust, Financial Report, OTCQX, Net Assets, Sponsor Fee