Zcash and Hyperliquid ETFs Surge as Bitcoin Lags

While Bitcoin and Ether have rallied to recover significant ground, they are not the primary drivers of the recent surge in U.S. spot crypto exchange-traded funds. The Grayscale Zcash ETF (ZCSH) has posted a remarkable 184% return year-to-date, significantly outperforming the major market leaders. This performance marks a sharp divergence in the sector, where privacy-focused and decentralized finance assets are capturing investor attention while the broader market remains below its annual starting points.

Bitcoin neared $87,000 for the first time since January, nearly erasing its losses for the year after bottoming below $59,000 in June. Ether has also staged a comeback, climbing to around $2,800 from a low of $1,550 earlier this year. However, the iShares Bitcoin Trust ETF (IBIT) remains down 1.3% year-to-date, and the iShares Ethereum Trust ETF (ETHA) is off 7%. Measured from last year's all-time highs, the decline is more pronounced, with IBIT down 31% and ETHA lower by 43%. There is no obvious catalyst for this specific move; in fact, the market rallied in spite of a recent headwind when the CLARITY Act, which would have established a regulatory framework for the industry, failed to advance in the Senate.

The likelier explanation for the recent jump is plain risk-on appetite, with stocks at record highs making crypto look cheap to some investors relative to its former peaks. Within this environment, privacy coins have emerged as one of the best-performing corners of the market. Zcash, a cryptocurrency designed to shield transaction details such as sender, receiver, and amount, has led this pack. The rally has been driven by renewed interest in financial privacy amid growing government surveillance concerns, alongside high-profile backing from crypto investors like Paradigm and Multicoin.

The launch of the ZCSH exchange-traded fund added to this momentum by providing a more accessible entry point for investors. The fund, which existed as a closed-end trust since 2017, converted to an ETF structure in August. This change opened the fund to a broader pool of buyers and utilized a creation and redemption mechanism that erased a trading discount. As recently as June, ZCSH traded as much as 24% below the value of its underlying coins. The fund now holds $917 million in assets, with $273 million coming from inflows since the conversion about a month ago. The remainder of the asset growth is attributed to price appreciation and the closing of the fund's discount to its net asset value.

Another notable performer is Hyperliquid, a blockchain built for decentralized finance with a focus on derivatives, including pre-IPO perpetuals that allow traders to take positions on private companies like OpenAI and Anthropic before they go public. The Bitwise Hyperliquid ETF (BHYP) is up 118% since its launch in May. Hyperliquid's design ties its HYPE token directly to platform activity through a mechanism that collects fees from user trading. Roughly 97% of these fees flow into a fund that continuously buys HYPE on the open market and removes it from circulation. This structure creates buying pressure proportional to trading volume, serving as Hyperliquid's response to criticism that Ethereum network growth does not reliably accrue to token holders.