Zcash Crash Just Wiped Billions From the Privacy Coin’s Market Cap—Can ZEC Recover?

In one of them, a four-year-old vulnerability was discovered that could have fueled unlimited production of ZEC Zcash’s private transaction pools – a core feature of the privacy-focused network – are causing panic among investors and causing ZEC to fall by more than 40% in one day.

The network’s native token has fallen 35% in the past 24 hours and recently changed hands at $339. During the sell-off, it briefly traded below $300, recording the lowest price since early April and wiping billions of dollars off its market capitalization. Prior to the sharp decline, the token had risen from under $200 in March to $675 at the end of May.

Now, however, those gains are all gone – and investors who rode the coin’s recent high are wondering if Zcash can ever regain that momentum.

“The news came at a time when the privacy story was heating up and ZEC was up about three times since April, outperforming Bitcoin and other major cryptocurrencies,” said Bitwise Research Analyst Ish Asad. told Declutter. “As a result of that timing, ZEC plummeted by 40%.”

The brutality of the decline is also a result of the uncertainty hanging over the situation. Although the vulnerability was patched earlier this week, the design of the network means it is not yet certain whether or not malicious actors actually exploited the bugallowing them to mint fake ZEC tokens.

“The price reaction reflects that uncertainty more than the bug itself,” Nicolai Sondergaard, research analyst at blockchain analytics firm Nansen, told me. DeclutterT.

“A patched vulnerability in a small privacy coin would normally be a footnote,” he added. “The -30% move is the market assigning a non-trivial probability to the scenario where some counterfeiting has occurred and is permanently undetectable without the proposed upgrade.”

The token, which reached nearly $700 in November and has recently returned to near that level, has been one of crypto’s top performers over the past year, rising more than 580% in that time — even after accounting for the dramatic drop.

But it seems unlikely that most of the recent gains will be recaptured anytime soon, said Jake Kennis, senior research analyst at Nansen. Kennis cited the significant price drop, plus growing trading volume along the way – over $3 billion in the last 24 hours, at the time of writing.

“It would likely require a broader story about the privacy coin and the need for privacy, a major catalyst at the protocol level, or a greater rotation into privacy assets,” he shared. Declutteradding that after a selloff like this, a token typically needs to “find its footing” before it can recover.

In Asad’s view, traders may be acting too quickly after the revelation.

“Often the market gets ahead of itself and adjusts prices, sometimes dramatically, in real time,” he says. “But the fundamental story doesn’t change: Zcash is a clone of Bitcoin with added privacy/encryption features, which will have its own market.”

BitMex founder Arthur Hayes falls into the camp and plays out the real-time rating, followers on social media tell that he dumped his entire ZEC bag for profit, in part because he “didn’t realize how this violated his narrative mental map.”

Still, the outspoken investor said that “privacy is priceless,” adding that he has “no problem” with buying back at higher prices if Zcash were to recover from the plunge.

In the meantime, can other privacy coins take advantage of the fallout around Zcash and pull back some of those merchants pushed away by the vulnerability? Nansen’s Kennis doesn’t see it happening anytime soon.

“I don’t think a potential vulnerability in a privacy protocol like this would be seen as a positive catalyst for any of its competitors in the short term,” he said.