Zcash (ZEC) & Grayscale ZCSH: Shielded Supply, Node Growth and a 20% Arbitrage Opportunity

Overview: After a more than 50% pullback from its earlier Q4 highs above $700, Zcash (ZEC) shows a mixed but constructive fundamental picture. Company BlockChair data points to a substantial rise in shielded ZEC supply, while Company ZECHub node counts and on-chain activity reflect improving adoption. At the same time, Company Grayscale's Grayscale Zcash Trust (ZCSH) trades at almost a 20% discount to its net asset value (NAV), creating a potential arbitrage if the fund is converted to a spot ETF.

Shielded Supply Is Rising: According to Company BlockChair, shielded ZEC briefly surpassed 5 million and remains around 4.8 million, representing nearly 30% of total supply and a 172% year-over-year growth as of mid-December. Increased shielded supply strengthens privacy guarantees for holders who opt for shielded transactions, and it is an important on-chain metric supporting ZEC's narrative.

Node Growth and On-Chain Activity: Node counts reported by Company ZECHub have climbed from fewer than 100 to nearly 200 in a year — modest versus networks like Bitcoin, but material for Zcash. Transaction throughput (TPS) spiked in November and has since moderated toward long-term averages, yet three-month activity remains higher than points in 2022–2024.

MVRV and Risk Dynamics: Company CoinMetrics data shows ZEC's MVRV pulled back from >2 to ~1.3, but crucially never dipped under 1 during the drawdown. That resilience suggests holders still retain unrealized gains on average. A market-wide risk-off could push MVRV below 1 and test shielded supply behavior; a decline in shielded supply under such stress would signal capitulation, whereas continued growth would indicate accumulation.

Grayscale Zcash Trust (ZCSH) Discount — The Trade Idea: As of December 19th, ZCSH price was ~$29.21 vs. implied NAV of ~$36.21 (based on ZEC price ~$444 and ~0.08155342 ZEC per share), implying a ~19–20% discount. Historically, closed-end trusts from Company Grayscale have shown persistent NAV deviations. With the current U.S. administration and regulators showing greater receptivity to spot ETFs beyond Bitcoin and Ethereum, Company Grayscale has filed to convert ZCSH to a spot ETF — a conversion that could materially compress the discount.

Why This Matters: The combination of improving on-chain fundamentals (shielded supply growth, node gains) and a meaningful NAV discount creates an asymmetric risk/reward for speculative investors. If ZEC appreciates, ZCSH should follow, and even in a flat scenario, the potential for spot conversion provides a catalyst for a narrowing discount.

Risks: The primary downside is further ZEC depreciation causing NAV erosion, widening ZCSH discount, or a contraction in shielded supply (indicating holders selling). Macro risk-off conditions could also cause MVRV to fall below 1, testing holder conviction.

Conclusion & Call-to-Action: For traders seeking a speculative arbitrage, buying ZCSH at near-20% discount can be justified as a smaller position — a contrarian play that benefits from both on-chain improvement and potential ETF conversion. Maintain position sizing discipline and monitor shielded supply, node growth, MVRV, and regulatory progress closely.