Better Cryptocurrency Buy: Dogecoin vs. Zcash

Whereas Dogecoin (CRYPTO: DOGE) is well known as being the meme coin that's practically the internet's mascot, Zcash (CRYPTO: ZEC) is a less known but still soaring privacy coin that mimics Bitcoinin in a number of ways.

Both of these assets are problematic in their own ways, yet it's also undeniable that in the past, both have at least temporarily made some investors quite rich. So which is the better one to buy today?

Image source: Getty Images.

There are quite a few differences between these two

Typically, comparing a meme coin and a coin that aims to provide real utility to its users is fairly trivial, as meme coins seldom have much to offer in terms of real value. But right now, Dogecoin looks better than in the past.

It now has a U.S. exchange-traded fund (ETF), the REX-Osprey DOJE ETF (NYSEMKT: DOJE), which aims to track the crypto's performance directly, and enables investors with brokerage accounts to hold it without incurring any self-custody headaches. That means Dogecoin is exposed to capital inflows from the traditional financial sector in a way it never has been before, which could support a persistently higher price over time. Of course, investors would still need to believe that the coin is worth buying before the ETF will have any major impact, and there isn't exactly a strong set of reasons to believe that for Dogecoin at present.

Zcash, on the other hand, is effectively a copy of Bitcoin, but with a feature that allows users to mask their transactions, preventing outsiders from understanding who sent money to whom, and how much. Its Bitcoin-style supply policy is a key selling point, as it has a hard cap of 21 million coins and a mining reward schedule that halves output roughly every four years. So, provided there's at least some demand for Zcash stemming from people seeking its privacy features, its price level should be biased to the upside over time, as supply will be harder to come by in the future than it is now.

That's in stark contrast to Dogecoin's supply situation. Dogecoin issuance is fixed at roughly 5 billion coins per year, so holders are always being diluted.

What has to go right for these coins to move

Dogecoin's new ETF isn't sufficient to make a real investment thesis for buying it, even if it might cause the price to pump a bit. It's entirely reliant on market sentiment and fickle investor enthusiasm, and it doesn't have a mechanism to gain in value over time. That makes its price increases very brittle and short-lived even when they occur.

Nonetheless, there are some significant risks associated with Zcash, too.

Privacy coins face real policy headwinds because financial regulators tend to dislike it when there's technology that threatens their ability to identify users. The European Union is moving toward rules that would effectively ban privacy coins by 2027 at regulated intermediaries, a sign of the anti-money laundering (AML) and know-your-customer (KYC) pressures that also make ETFs for Zcash quite unlikely in the near term. Furthermore, crypto exchanges have periodically delisted or threatened to delist privacy-focused cryptoassets, including Zcash specifically. Those legal and regulatory battles surrounding privacy coins are not done yet by any means, and they might not ever be.

However, if we assume that Zcash can continue to muddle through a less-than-permissive global regulatory environment -- which it has done so far since its launch in late 2016 -- in the long run it could still gain in value even if there are a lot of serious bumps along the way. And while it's also fully possible that Dogecoin will gain in value over the long term as well, there's simply no way to be confident in that outcome actually happening. Thus, Zcash is the better buy, even if it's a pretty risky play that isn't necessarily a good fit for everyone to own.

Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.