It’s a good time to be a crypto investor. Major coins such as Bitcoin (BTC) and Ethereum (ETH) are both up by triple-digit figures over the past year. However, Zcash (ZEC), a privacy-focused crypto which features more of the original ideals of the crypto movement than both BTC and ETH, isn’t performing as well. On the surface, it might look like an opportunity to get in early. But you’ll want to take a second look.
Along with much of the crypto market, the price of ZEC has increased by just over 45% over the past year. As of the time of writing, Zcash was trading near the $80 mark. But compare that to Bitcoin and Ethereum. Bitcoin, the largest crypto by market capitalization, is up in the region of 250% over the last year. ETH, which is next to BTC in terms of market cap, had done nearly 640% over the same period.
Note: The crypto market is notorious for huge price swings. Double-digit percentage changes aren’t hard to come by when trading crypto. The quoted historical performances here are subject to change, depending on when you’re reading this.
Why Is Zcash Underperforming Its Peers?
The unique design of Zcash — in that it offers better privacy compared to many of its peers — is a big reason for its underperformance.
Unlike Bitcoin and Ethereum, the Zcash blockchain allows users the option of either revealing or hiding their transaction details — including wallet addresses and transaction amounts. The Bitcoin and Ethereum blockchains, by default, make that information public.
Zcash isn’t the only coin to offer such flexibility for privacy. Monero (XMR) is another privacy coin. Monero has also underperformed relative to bitcoin and ether.
There are regulatory concerns around the world that privacy coins would be an easy target for illicit transactions. Japan and South Korea, both of which have large numbers of crypto users, were the first two countries to ban the use of privacy coins back in 2018 and 2019. Last December, privacy coins drew the headlines again when the United States Financial Crimes Enforcement Network (FinCEN) noted in proposed change of rule for cryptocurrency transactions that privacy coins limit regulatory oversight.
Anonymity-enhanced cryptocurrency (AEC)“employ various technologies that inhibit investigators’ ability both to identify transaction activity using blockchain data and to attribute this activity to illicit activity conducted by natural persons,” FinCEN wrote, citing the use of AECs in the 2017 WannaCry ransomware attack.
AEC is the term that the U.S. government has coined to describe privacy coins. The FinCEN named Zcash, Monero, Dash, Komodo and Beam as examples of AECs.
How Will Further Government Crackdown Affect Zcash?
High on the list of the potential outcomes of a further crackdown on Zcash by governments is the delisting of the cryptocurrency by centralized crypto exchanges. Such an event would significantly put ZEC at a disadvantage from a usability standpoint. That is because, for one, centralized exchanges such as Coinbase and Binance are the venues that onboard new crypto users. Coins that are listed on centralized exchanges are more readily accessible and hence more usable.
The delisting has already started, though. When Japan and South Korea cracked down on the use of privacy coins, local exchanges started delisting privacy coins, including Zcash.
Following the FinCEN’s publication, U.S.-based exchange Bittrex delisted Zcash Monero and Dash on Jan. 15. This only a continuation of a growing trend of privacy-coin delisting by crypto exchanges. Last year, the likes of Shapeshift and Europe-focused LiteBit delisted privacy coins.
If the delisting trend were to worsen to the extent that larger exchanges like Binance and Coinbase delisted Zcash and other privacy coins, trading volumes for these coins would drop and so would the price. And that’s a high possibility, with regulators determined to have surveillance on every blockchain network.
How to Play Zcash
Given the present regulatory uncertainties surrounding privacy coins, investors would want to be cautious of Zcash along with other privacy coins. While there are strong fundamental ideals behind ZEC which could make it a long-term play for the pro-privacy investor, the short- to mid-term outlook for the privacy coin cohort, including Zcash, is bleak.
Of course, the coin has been trading in the green over the last year. But that is because the larger crypto market has been bullish. In a bearish market, however, Zcash is likely to continue its underperformance. That would make it a bigger loser than other prominent coins.
And you can be sure that the market will become bearish at some point.
On the date of publication, Craig Adeyanju did not have (either directly or indirectly) any positions in the securities mentioned in this article.