[Digital Today reporter Yoonseo Lee] Asset manager Grayscale has concluded that privacy coin Zcash (ZEC) can push back against Bitcoin’s network effects.

CoinPost, a blockchain media outlet, reported on Aug. 26 that Grayscale Research said in a report released on Aug. 25 that Zcash is an asset with room to compete in the cryptocurrency currency segment.

The report came alongside the launch of a spot Zcash exchange-traded fund (ETF). Grayscale converted its subsidiary Zcash Investment Trust into the spot ETF, ZCSH, and listed it on NYSE Arca, part of the New York Stock Exchange, on the same day. It is the first ETF to provide direct investment exposure to Zcash.

Grayscale said Bitcoin still holds an overwhelming position in the currency segment. Under the Crypto Sectors taxonomy jointly developed by Grayscale and FTSE Russell, Bitcoin accounts for 93 percent of the market capitalisation in the segment. With strong network effects, there are not many competing assets, and investors often do not diversify into assets other than Bitcoin.

Grayscale also said Zcash, as a latecomer, has different strengths. It cited financial privacy in the era of artificial intelligence as a differentiating factor for Zcash. It also pointed to a development framework that considers resistance to quantum computers and cross-chain connectivity through its wallet "Intent" technology as competitive factors.

Grayscale said in particular that Zcash does not need broad merchant acceptance as a precondition. It said connectivity through Intent technology could allow it to serve as an asset hub. While Bitcoin grew on a first-mover advantage, it said Zcash could expand its presence in a different way by targeting demand for privacy and connectivity.

It also mentioned market trends. ZEC has risen about 19 times over the past year, but its market capitalisation is still less than 1 percent of Bitcoin’s. Grayscale Research said it sees the gap as a sign that the value of financial privacy is undervalued in the market. It said there remains room for competition and further upside even within the currency segment.

It also disclosed the ETF’s revenue structure. Grayscale said ZCSH’s total expense ratio is 2.5 percent. It added that it plans to use the revenue to support development of the Zcash network.

Against this backdrop, Zcash has entered a phase of inclusion in institutional investment products. Grayscale’s move to list a spot ETF while at the same time defining Zcash as an asset that counters Bitcoin can be seen as presenting to the market an investment case built on privacy and interoperability. Going forward, the scale of inflows into ZCSH and whether support for the Zcash network leads to actual ecosystem expansion is expected to be a key point to watch.