Zcash is Dead: Long Live Zcash
ZEC has broken long term support at $22 and appears poised to test the COVID low of $17. Sentiment online is the worst I've ever seen. Let's explore some charts!
As of hitting “send it,” Zcash ($ZEC-USD) is trading well under $20 and it appears ZEC could even test $17 by the end of the week if not the end of the day. On December 10th ZEC nearly hit $39. For essentially the last month, the coin has gone down 50% in virtually a straight line.
This is sad to watch on several levels. First, I’m a ZEC bagholder. I’ve watched it go from a top 3 holding in my crypto portfolio to one that has dropped out of my top 10 entirely - and I haven’t been selling. Here’s the thing though, I don’t care about the money. Everything in crypto could go to 0 tomorrow and I’d be fine.
It’s the idea of Zcash failing that really bothers me more. ZEC is a “privacy” coin. Including Monero ($XMR-USD) and Dash ($DASH-USD), there are a handful of these types of instruments and most of them have been taken to the woodshed lately. None as bad as ZEC though, which is down 30% over the last six months at a time when Bitcoin ($BTC-USD) has rallied over 50%.
More broadly, privacy coins are battling potential delistings from major exchanges like Binance ($BNB-USD) and OKX. In a world that demands strict KYC (know your customer) rules, privacy is non-compliant by design. My opinion and possibly an upsetting one; there is a high likelihood that all of these privacy coins will ultimately be delisted from every major exchange. The ones that remain on exchanges likely did so by sacrificing some portion of the network/community ethos.
The delisting threats are unequivocally a response to regulatory pressure from the US DOJ and from MiCA stablecoin regulations in the EU. The reason why firms like Elliptic and Chainalysis were able to refute the Wall Street Journal’s crypto/Hamas funding claim in October was because the most popular cryptocurrencies (Bitcoin included) are actually incredibly easy to track and thus terrible for individual privacy. Privacy coins obviously aim to solve this transparency problem but do so at the risk of being effectively criminalized in the same way mixers like Tornado Cash have been in the past.
This is just the beginning. While I’d love to tell you privacy coins like Zcash are immune from this type of criminalization, that would be a lie. It is almost certainly more dubious in reality to try to track shielded transactions and locate every ZEC node on planet earth to force a network shutdown, but there is nothing stopping the Treasury Department from simply criminalizing the usage of Zcash or any cryptocurrency for that matter. - Me, August 2022
Of course, ideas can thrive in a black market. And the more people who decide to disobey a law, the less enforceable that law is. However, as 2024 seemingly becomes the year of “TradeFi” adopting crypto through ETF approvals and stablecoin settlements, it seems to be a foregone conclusion that the true peer to peer networks that would disrupt, rather than simply become assets managed by, Wall Street investment firms have a long way to go. If they go at all…
For now, Zcash is dead. Or perhaps just left for dead.
Is It Actually Dead? Too Early To Tell
If Zcash were indeed “dead,” there are things that I’d expect to see happening on-chain and at this point in time none of them appear to be happening. First, if Zcash was dead, I’d expect to see hashrate collapsing. As of right now, Zcash hashrate is down over the last 12 months but still well ahead of lows from the summer of 2021:
It admittedly isn’t a great chart when compared to the hashrate of something like Bitcoin, but considering ZEC is down 95% from its 2021 high of $392, I’d expect more miners to be turning off rigs than what has been observed so far. More importantly, if true long term holders were throwing in the towel here, I’d expect to see ZEC coming out of the shielded pool and I simply don’t see that to a large enough degree:
There were 1.2775 million ZEC in the shielded pool on December 31st, 2023. There are 1.2767 million ZEC in the shielded pool on January 9th, 2024. It’s a rounding error. The pool is only 7% off its all time high of 1.37 million in September. Finally, if Zcash was dead, I’d expect to see the NVT ratio skyrocketing and it’s doing the opposite. Yesterday the ratio was 32. The 90 day average is 59.6:
The only proof of work payment coin that is cheaper by 90 day NVT is Litecoin ($LTC-USD). For the non-crypto investor, NVT is a valuation ratio that utilizes a coin’s market capitalization and the dollar-denominated value transferred over the network. This ratio is volatile so smoothing it out over 90 days is the best way to look at it in my opinion. If Zcash was dead, the ratio would be going up not down.
Tale of Two Coins
Of course, ZEC is not the first coin to be left for dead. Maybe the best recent example of a coin with a loyal following that was absolutely toast in the eyes of the filthy masses was Solana (SOL-USD). At its peak in late 2021 SOL was nearly $250. During and after the collapse of FTX in late 2022, Solana fell all the way from $38 to $8 and many wondered if it was over for Solana, myself included. SOL ended 2023 at about $100.
What brought it back? For one, VC investors like Chris Burniske started openly talking about SOL being a buy. Which might seem insignificant or even scammy but it does help sentiment. There was also meme activity through coins like BONK-USD. And as I laid out in a recent article covering SOL, I believe Solana’s resurrection is more about transfer volume than anything else. SOL has a viable fundamental story because Visa V 0.00%↑ is using it for stablecoin settlement.
None of this means Zcash can or will have a similar resurrection but it certainly isn’t out of the realm of possibility. Stripping out all of the noise, SOL is rallying because, for better or worse, it has utility - especially in a high-fee environment. ZEC has utility as well. It’s just a different kind of utility; base layer privacy. The problem? Most people don’t actually care about privacy in practice even if they think they do.
As much as I like Zcash the protocol and have been rooting for its success, I think it would be unproductive to view ZEC as a viable investment at this point in time. ZEC is and can continue to be a wonderful private digital currency. - Me, late December
Closing Thoughts
In the last 22 months, ZEC has appreciated in dollar value exactly 6 times. This has been as brutal as it has been embarrassing. Over the last 6 months, ZEC has underperformed FTX Token (FTT-USD), Celsius Token (CEL-USD), and Terra Classic (LUNC-USD). This is how bad its been for Zcash.
In each instance, FTT, CEL, and LUNC represent coins of clearly failed networks at best and platforms that involved fraud at worst. FTX collapsed. Celsius went bankrupt. Terra Luna collapsed and its founder was arrested. And it’s not just a problem of cherry picked performance. These are the fully diluted caps of these coins:
FTT: $858 million
LUNC: $787 million
ZEC: $407 million
CEL: $127 million
Somehow two of these legitimately dead coins have more value as memes than ZEC has as a utility coin? I flat out refuse to believe that but that could just be me being stubborn because I’ve been so wrong on this call.
Remember, to sell a coin and get dollars back, there must be a buyer for the coin you’re trying to sell. If ZEC longs are capitulating, somebody else is on the other end of that trade. So who is selling and who is buying right now? I have no idea and I won’t try to guess. But the same VC investor who effectively called the bottom in SOL has also spoken highly of Zcash in the past and it’s one his firm has previously invested in:
Does Placeholder still have ZEC? I can’t say. But even if they do, I wouldn’t expect to see Burniske go on Real Vision and start talking about ZEC. I highly doubt anyone investing professionally or running a fund will come out and say they’re actively buying this coin at this point. It’s probably too hot from a regulatory standpoint. Which was probably always the purpose.
Zcash is dead. Long live Zcash.
Disclaimer: I’m not an investment advisor. Every crypto and digital trinket could go to zero. I hold BTC, LTC, SOL, and the privacy coin carcass that is ZEC.