It’s safe to say that with cryptocurrencies breaking all kinds of multi-year or all-time records, few investors are presently thinking about their underlying blockchain technology. Instead, it’s all about the money and who can blame them? With bitcoin (CCC:BTC) breaching the $40,000 barrier (though it corrected recently), the virtual currency market has entered a new paradigm. And that makes alternative cryptocurrencies (altcoins) like Zcash (CCC:ZEC) immediately attractive.
Source: Shutterstock
Psychologically, many investors prefer to own whole units of assets as opposed to fractional shares. With BTC hitting well into five-digit territory, this is a proposition that only a minority of retail investors can afford. However, Zcash is a different animal. At time of writing, ZEC is trading just under $80 (subject to extreme change by the time you read this).
Call it what you want. Would you rather have 1 BTC or 513 Zcash coins? It’s the same dollar value but there’s just something about having 500 units of something as opposed to one.
But beyond the psychological “value,” lower, more practical denominations amplify ZEC’s fundamental proposition. Primarily, Zcash functions as a next-generation alternative to financial transactions. Like bitcoin, all transaction-based data is recorded on the blockchain. Unlike bitcoin, that data is not publicly broadcasted, ensuring maximum security and discretion.
On the surface, Zcash sounds similar to Monero (CCC:XMR), the “bad boy” of the cryptocurrency market because of its distinct architecture that anonymizes the transactions that occur on its blockchain. Naturally, this has made Monero the target of regulatory bodies.
However, it would be unfair to lump in ZEC in the same category. According to ZEC’s official website, its architecture has “Selective disclosure features within Zcash” that “allow a user to share some transaction details, for purposes of compliance or audit.”
Furthermore, Zcash features low-fee transactions. Moving forward, this could help spark the microtransaction industry, connecting developed markets to developing and frontier markets. Still, the nagging question: does ZEC make sense as an investment?
The Seemingly Unique Dynamic of Zcash
As with any cryptocurrency-related endeavor, you must firmly understand two pivotal words: buyer beware! I’m not kidding. I understand the euphoria that surrounds various capital markets. From stocks to commodities to virtual currencies, everything seems poised to go up, up and away.
However, I’ve seen so many people get carried away, especially with the blockchain. For instance, I recently came across a story of John Kim, a businessman who sold everything to go all-in on litecoin (CCC:LTC). He did so in 2018, at a time when the cryptocurrency complex was about to enter a long winter.
Not surprisingly, Kim stated that he experienced some “dark moments.” Brother, that is no joke. According to the piece, Kim appears to be doing much better, and he may end up being the last one laughing. Seriously, though, don’t do this. Please.
Anyways, that is an incredibly longwinded – but hopefully useful – way of saying that cryptocurrencies still have a Wild West element to it. By no means is Zcash an exception.
But where ZEC is different is how it’s reacting to the bitcoin sympathy play. As you can probably tell, many altcoins share a strong direct correlation with bitcoin: as BTC goes up, so do select altcoins, and vice versa.
Source: Chart by Josh Enomoto
On the other hand, ZEC used to have a strong correlation with bitcoin. From the period between the first quarter of 2017 to Q2 2019, the two assets shared a 71% correlation coefficient. That’s a significant ratio. However, the correlation weakens substantially from Q3 2019 onward. And it’s practically an inverse relationship from Q3 2020 to the time of writing.
What’s going on? Unlike the other altcoins, ZEC just hasn’t latched onto the crypto bull wave. I’m not sure if this is a delayed effect. As in, would ZEC bounce higher a few weeks down the line? Could Zcash be a hedge against mainstream crypto coins?
I think your opinion is as good as anyone’s.
How to Approach ZEC
If you’re just starting out in your cryptocurrency journey – and assuming you understand the risks associated with this wild, unpredictable market – you may want to first try your hands with the established tokens.
I’m talking fractional ownership of bitcoin and well-known altcoins like ethereum (CCC:ETH) and litecoin. If you’re comfortable with these assets, then it could be time to “graduate” to assets like Zcash.
I give this warning because ZEC is currently ranked No. 42 in terms of market capitalization. To its benefit, ZEC is offered in popular crypto wallets/exchanges. But the lack of volume and interest relative to the majors could see either wild trading activity or unusual dynamics or both.
As well, if you are patient and are willing to absorb extremes in volatility, ZEC could be a profitable bet on the future of microtransactions. Again, you have to be responsible and play with your head, not with your heart.
On the date of publication, Josh Enomoto held a long position in BTC, LTC, and ETH.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.