Up 429% in 1 Month, Is the Zcash Cryptocurrency a Screaming Buy?

Every investor is eventually tempted by an asset that uses the same core recipe as a proven big winner, but with one additional twist that could either be brilliant or fatal. On that note, meet Zcash (CRYPTO: ZEC). It looks a lot like Bitcoin (CRYPTO: BTC) under the hood, yet it adds optional privacy features that can conceal senders, receivers, and transaction amounts.

And during the 30-day period ended Oct. 21, Zcash's price has gone to the moon, climbing by 429%. It isn't showing any signs of slowing down. Does that make it a screaming buy, or is there more risk than reward left on the table here?

Image source: Getty Images.

This coin aspires to be Bitcoin plus privacy

First, let's go over Zcash's investment thesis, much of which is overlapping with the thesis for buying Bitcoin.

Zcash, like Bitcoin, features a hard supply cap of 21 million coins. Likewise, its issuance declines via halvings. And its proof-of-work (PoW) design adjusts its mining difficulty automatically to target steady block production -- again, just like Bitcoin.

In other words, its scarcity is encoded, and its supply tightens over time, likely forcing the price upward. Bitcoin offered these features first, but it's very plausible that Zcash could grow in value by quite a bit over time as a result of them too.

But Zcash's differentiator from Bitcoin is its privacy. Users can choose transparent wallet addresses, which behave like Bitcoin's wallets, or shielded addresses, which hide transaction details via cryptographic proofs called zk-SNARKs. Don't worry about the technical aspects too much here, unless it interests you. The more important question is whether investors actually use the privacy features.

Historically, most activity on Zcash's chain was transparent, with users ignoring its privacy functions, which blunted much of the coin's core selling point. Recently, however, shielded adoption has jumped; as of October, the value held in the shielded pool exceeds 4.5 million coins, roughly 25% of the circulating supply. But that's still a minority of the coins actually being protected by its privacy features.

The catch is a big one

In theory, it would be swell to have a privacy-capable alternative to stores of value like Bitcoin. If your transactions and wallet addresses are private, it's a lot harder for people to target you to steal your coins, and a lot harder for authoritarian governments to freeze or seize your funds on a whim if you say or do something they don't like. These are major concerns in our current world, and Zcash aims to address them, at least in part.

The big problem is that because they make money a lot harder to monitor and regulate, privacy coins like Zcash have lived under a cloud for years, and that is unlikely to clear soon. In the E.U., sweeping anti-money-laundering (AML) rules coming into effect by 2027 will prohibit service providers from dealing in privacy coins and anonymous accounts, pressuring listings and liquidity. That feeds through into fewer centralized crypto exchanges being willing to list assets like Zcash.

The exchange OKX said in early 2024 that it would delist multiple privacy coins, including Zcash, a concrete example of how market access can narrow even after it's established. When the capital pipes shrink, adoption and price discovery suffer to the detriment of investors. Critically, just holding onto your coins for longer is not necessarily going to solve anything if regulators decide to really crack down.

Zcash also faces a few tough rivals. Monero's default-private model appeals to users who demand even stronger baseline privacy, though it, too, faces risk of being delisted.

Meanwhile, Bitcoin remains the digital gold brand and the crypto sector's benchmark, with the deepest institutional recognition and the most mature narrative. Zcash's optional privacy and Bitcoin-like scarcity are interesting, but mindshare and distribution still favor Bitcoin by a wide margin before even getting into the competition or the numerous regulatory threats facing Zcash.

Therefore, investors should treat Zcash's recent move as a test of its narrative's durability. If shielded use keeps growing, and if regulators allow reasonable access, the investment case will strengthen.

So is Zcash a screaming buy? For most investors, no.

It isn't a bad investment today for those who can tolerate a lot of risk, and it might be worth owning in the long run for a broader set of investors, but there's simply not much of a rush to buy this coin today, especially not when its price is potentially overextended. There will always be the opportunity to accumulate it when the regulatory clouds look to be clearing, if they ever do.

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