ZEC’s smaller market cap and higher volatility than BTC make options compelling for risk management and potentially attractive for premium income.
Zcash has been on an absolute tear. The privacy-focused cryptocurrency rose over 142% in the past month alone and reached $1,236.
Grayscale Head of Research Zach Pandl believes that its smaller market capitalization and significantly higher price volatility compared with Bitcoin could make options an especially useful tool for investors seeking risk management or alternative income.
Options Opportunity
Bitcoin has become considerably less volatile as the asset has matured. In its early years, BTC saw realized annualized volatility of around 125%. Over the past year, however, that volatility has averaged roughly 40%, putting Bitcoin at a level similar to the so-called “Magnificent 7” large-cap technology stocks. Zcash, however, remains a much smaller and more volatile asset.
Its market capitalization is just 1% of Bitcoin’s, while ZEC’s price volatility has averaged about 140% over the past year. This aspect can make options particularly useful for managing risk and pursuing alternative sources of income. At current volatility levels, a hypothetical covered call strategy on Zcash could generate premium income equivalent to an implied yield of 70%, compared with an annualized yield of about 30% currently available through Bitcoin covered call strategies.
The higher potential income from Zcash options also comes alongside greater risk. Pandl explained that covered call strategies can suffer capital losses when the underlying spot price falls by more than the premium received, which means that the premium does not fully protect investors from a sufficiently large decline in the asset’s price.
Investors looking for more clearly defined outcomes can instead consider long call or put option structures.
BTC’s lower volatility has reduced the potential premium available through covered calls, while ZEC’s much higher volatility creates the possibility of significantly greater premium income, although it also increases the risks involved.
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ZEC has become the biggest story in the privacy coin market after its value jumped more than 2,360% over the past year. The rally has pushed it from 82nd to 10th among the largest cryptocurrencies. It now makes up 62% of the privacy sector’s total market capitalization.
On Financial Privacy
Zcash also comes into focus amid concerns that artificial intelligence could trigger a new wave of financial privacy risks as its use expands across the economy. Pandl had previously said that AI could make it easier to identify people behind blockchain addresses and increase demand for stronger privacy tools. Unlike Bitcoin, where transactions are publicly visible, Zcash allows users to make shielded transactions that hide both the addresses involved and the amount transferred.
Grayscale believes that this feature could become increasingly important for people who want greater financial privacy.
