Zcash (ZEC-USD) is a cryptocurrency that uses cryptography to bring strong privacy features to its users. Its structure is similar to that of Bitcoin (BTC-USD) with just 21 million coins available for distribution. However, that hasn’t helped Zcash from tumbling this year to new lows.
For example, as of April 17, ZEC was trading at $138 per token, about 34% below its peak price of $209.20 reached on March 26. The main reason seems to be that governments are cracking down on “privacy coin” transactions like those from Zcash.
Privacy coins like Zcash allow for anonymous crypto transactions. That makes them a favorite of money laundering schemes, or, for that matter, to evade sanctions.
On March 31, the European Union (EU) supported “tougher traceability rules” in relation to crypto transactions, according to Euronews. The draft legislation was later passed by the EU during the first week of April.
It will require crypto firms to collect and share data on transactions. Groups such as exchanges would have to obtain, hold and submit information on those involved in transfers. The legislation would also crack down on “unhosted” wallets held by individuals, not exchanges. It would require recordkeeping of crypto transactions and notification of relevant authorities of transactions worth 1,000 euros or more.
That could put a huge dent in the growth and acceptance of privacy coins like Zcash. This could be why ZEC has been falling lately.
Brian Armstrong, the CEO of Coinbase (NASDAQ:COIN), has come out strongly against the EU legislation. He says it is “anti-innovation, anti-privacy, and anti-law enforcement.” The new rules will effectively require Coinbase to allow all transactions to be available to authorities and could effectively ban transfers to and from self-hosted crypto wallets like MetaMask. This is a very popular wallet with more than 30 million accounts.
If these rules go into effect, the popularity of Zcash could tumble further, dragging down its price as well. Until there is clarity about the implications of this legislation, investors should probably steer clear of ZEC for now.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.