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Zcash Price Analysis – Privacy technology development continues

Fundamentals show continuing progression and improvements of the ZEC privacy technology, with declining transactional usage and active addresses.

Zcash (ZEC) is a privacy-oriented coin currently ranked 22nd on the BraveNewCoin market cap table. The ZEC spot price is down 95% from the all time high set in January 2018. The market cap currently stands at US$279.95 million with ~13% of the total market cap traded in the past 24 hours, or US$37.32 million.

The ZEC protocol is based on Zerocoin, which was developed in 2013 and later turned into Zerocash, and a difficulty adjustment algorithm adopted from DigiShield v3. The ZEC cryptocurrency went live in 2016. Trading began in late October 2016. The ZEC blockchain currently targets a 2.5 minute block time and a block size limit of 2MB. The total supply is 21 million, with a current daily (chart below) and annual inflation rate of 0.12% and 44% respectively. The ZEC inflation rate is one of the highest among any cryptocurrency. In contrast, Bitcoin’s current annual inflation rate is 3.59%.

Zcash Price Analysis 5 Feb 2019 (1)

Ten percent of the total coin supply will be distributed to stakeholders of the Zcash Company in the form of a "founders’ reward," shared between investors, developers, and the Zcash Foundation. The founders reward provides an alternative to the ICO model, which often raises money before a project is out of beta. The ongoing incentive was designed to encourage a dedicated team to develop the project over many years.

The founder and CEO of the Zcash Company is Zooko Wilcox. The Company is described as "the creators and stewards of the Zcash currency." Notable advisors included Bitcoin developer Gavin Andresen, Ethereum founder Vitalik Buterin, and Tezos’ Arthur Breitman. Roger Ver was also one of the Zcash Company’s initial investors.

The Zcash Foundation, created in February 2017, is an independently operated 501(c)3 whose mission is "dedicated to building Internet payment and privacy infrastructure for the public good, primarily serving the users of the Zcash protocol and blockchain." Current foundation members include Andrew Miller, Peter Van Valkenburgh, Amber Baldet, Matthew Green, and Ian Miers. Green and Miers were both part of the original ZEC founding team.

Zcash Price Analysis 5 Feb 2019 (2)

The ZEC protocol leverages zk-SNARKs, or Zero-Knowledge Succinct Non-Interactive Argument of Knowledge, which are based on zero-knowledge proofs. The protocol uses zk-SNARKs for optional privacy elements. ZEC addresses beginning with a "t" are transparent, and addresses that start with a "z" include privacy enhancements and are referred to these as "shielded addresses."

ZEC had two protocol upgrades in 2018, "Overwinter" on June 26th, and "Sapling" on October 29th. Both upgrades were enacted through hard forks, and both enhanced transaction efficiency and scalability for shielded addresses. The Sapling upgrade has reduced the zk-SNARK proving time from 37 seconds to 2.3 seconds.

The shielded transaction count, or shielded pool, continues to represent a small fraction of total transactions, currently around 2.2% (chart below). This is largely because many services and wallets did not support the use of shielded transactions until the Sapling hard fork. The protocol upgrade also brought the introduction of zc (legacy shielded) and zs (Sapling shielded) addresses (distinction not shown below). In December 2017, programmer jeffq discovered that shielded transactions on ZEC can be linked to non-shielded transactions unless both the sender and receiver were part of the "shielded pool" of anonymous transactions.

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The current number of total transactions per day on the network (line, chart below) stands at ~2,300 transactions, down from a January 2018 high of 11,500 per day. Transactions per day have been on a continuous decline since August of last year and are currently at April 2017 levels. The average transaction value (fill, chart below) is currently ~US$5,300, up from a June 2018 low of US$2,600, but down from a June 2018 high of US$56,000.

Zcash Price Analysis 5 Feb 2019 (4)

The average daily block size (line, chart below) had been in a downward trend since May 2018, until spiking last week. Average transaction fees (fill, chart below) have declined since June 2018, and are currently at US$0.0239. The Sapling upgrade made shielded transfers 100 times smaller in size than before the upgrade, which in turn now makes these transactions cheaper to send.

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The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) has been falling since November 2018 and is sitting near all-time lows. A clear downtrend in NVT suggests a coin is undervalued based on its economic activity and utility, which should be seen as a bullish price indicator, whereas an uptrend in NVT suggests the opposite. The 2.2% of total transactions which are shielded are not included in this calculation, meaning the true NVT is likely slightly lower than the metrics suggest.

Active addresses are important to consider when determining the fundamental value of the network based on Metcalfe’s law. Daily active addresses (fill, chart below) have declined from the January 2018 high of 96,000 to the current 18,000. ZEC has fewer daily active addresses than Bitcoin, Ethereum, Litecoin, Doge, Dash, and Bitcoin Cash. There are also 18 ZEC groups on with 2,659 members total. The /r/Litecoin subreddit has 15,000 subscribers and there are currently only six ZEC-related job postings on LinkedIn. A ZEC oriented conference, Zcon1, will take place June 22–24 in Split, Croatia.

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The ZEC network currently has 413 unique and active nodes, which is down from 600 in December. Most of the nodes reside in the United States, Denmark, and France. ZEC uses the Equihash Proof of Work (PoW) algorithm, which was originally thought to be ASIC-resistant. However, Bitmain developed ASIC miners for the Equihash algorithm, which first went live on the network in May 2018, and shipped broadly in June 2018.

In May 2018, the ZEC foundation announced an initiative towards researching ASIC resistance on the chain and the Zcash Company concluded that the "ultimate objective" is the broad inclusion of both hobbyists and professionals. In June 2018, the ZEC community voted and decided to discourage ASIC resistance as a priority and instead focus on currently unused PoW algorithms. Any future changes will need approval through the ZEC Improvement Proposal (ZIP) process.

Hash rate and difficulty have continued to increase rapidly after the release of the Innosilicon A9 ZMaster ASIC and the ASICminer Zeon 180K in June and September of last year. Innosilicon also released an upgraded A9 ZMaster ASIC last month. Equihash GPU mining on NVIDIA graphics cards is likely dominated by two software programs, Bminer and Cryptknocker, the latter is owned by GMO, is closed-source, and charges a 2% fee.

The use of ASICs to mine a cryptocurrency can mean that the network becomes much less decentralized over time as the hardware continually squeezes out miners with less hashing power. While constant PoW adjustments decrease ASIC use substantially, the process may also lead to a different type of centralization through the need for constant node upgrades.

The upcoming "Blossom" upgrade is slated for October 2019 and will possibly include harmony mining, shorter block times, and transparency in distribution of the founders reward. Harmony mining is a dual-proof-of-work scheme, where one algorithm is backwards compatible with current mining equipment, and another is designed to work well with GPUs on a temporary time scale. This may also include a variant Equihash algorithm, which is currently used by Beam.

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The ZEC project on GitHub has 14 repositories with a cumulative 1,161 commits from over 100 developers over the past year. The main repo (shown below) has had 40 commits in the past 90 days. Earlier this month, the Zcash Foundation announced a reorganization of GitHub repos which will archive the Foundation’s mission statement and legal documents and move these resources to their new URL

Most coins use the developer community of GitHub where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.

Zcash Price Analysis 5 Feb 2019 (8)

ZEC exchange traded volume over the past 24 hours has predominantly been Bitcoin (BTC) and Tether (USDT) pairs. The majority of trading has occurred on L-Bank, Huobi, and HitBTC. ZEC was added to the Gemini exchange on May 2018, Bittrex in September 2018, Coinbase in December 2018, and eToro last month. ZEC’s privacy functions are disabled when sending coins off of most exchanges.

In June 2018, the U.S. Secret Service recommended regulation of all privacy coins, including ZEC, Monero, and Dash. Japan’s Financial Services Agency has already pressured exchanges to drop the same assets, citing criminal activity. Coincheck, one of the more popular Japanese exchanges, delisted all three coins in May 2018.

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Google Trends data for the term "zcash" remains down sharply over the course of the year and is sitting at a yearly low. A slow rise in searches for "zcash" preceded the bull run in Q4 2017, likely signaling a large swath of new market participants at that time. A 2015 study found a strong correlation between the google trends data and BTC price while a 2017 study concluded that when the U.S. Google "bitcoin" searches increased dramatically, BTC price dropped.

Zcash Price Analysis 5 Feb 2019 (10)

Technical Analysis

ZEC price action over the past year has correlated with the rest of the bearish cryptocurrency market, while the high rate of coin issuance per day has also helped to kill any rally related to exchange listings. The status of any trend can be evaluated using exponential moving averages (EMAs), chart patterns, and the Ichimoku Cloud. Further background information on the technical indicators discussed below can be found here.

On the daily chart, the 50/200EMA cross has been bearish since March 2018 with price largely being held below the 50EMA. Although a bullish entry would not be warranted until a bullish 50/200EMA golden cross occurs, a price move towards the 200EMA at US$110 is possible simply due to mean reversion. There is also a potential bullish reversal pattern building, an Adam and Eve double bottom, which has roughly the same measured move as the 200EMA.

Price is slightly below a large block of historic volume at ~US$58. There are no active volume or RSI divergences. Bitfinex open interest is massively net long (top panel, chart below), with longs reaching record highs. A significant price movement downwards will result in an exaggerated move as the long positions will begin to unwind.

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Turning to the Ichimoku Cloud, four metrics are used to determine if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.

The status of the current Cloud metrics on the daily time frame with doubled settings (20/60/120/30) for more accurate signals are bearish: the price is below the Cloud, the Cloud is bearish, the TK cross is bearish, and the Lagging Span is below Cloud and below price.

A traditional long entry will not trigger until price is above the Cloud. However, if the TK cross turns bullish and price enters the Cloud, a long reversal trade will trigger with an entry near ~US$56 with a target of ~US$95. This is known as an Edge to Edge trade.

Zcash Price Analysis 5 Feb 2019 (12)

On the ZEC/BTC pair, price has remained below the 200EMA since the asset’s launch. Price has also been significantly constrained by the 50EMA for the past few months. A break of the 200EMA, currently at 0.019BTC, as well as a bullish 50/200EMA cross would be a strong signal for bullish continuation. Otherwise, price will likely remain below the 200EMA for the foreseeable future with 0.010 BTC acting as a psychological support.

Zcash Price Analysis 5 Feb 2019 (13)


Fundamentals show continuing progression and improvements of the ZEC privacy technology, with declining transactional usage and active addresses. Even with the integration of Sapling, shielded addresses are not being utilized by a majority of transactions. To some, the optional privacy of ZEC will always be vastly inferior to the default privacy of XMR. The inflation rate of ZEC will likely continue to quell any attempt at a long term bull trend, especially without any mainstream adoption.

Technicals suggest another potential end to the multi-month parabolic downtrend on the ZEC/USD pair. The daily Cloud and 200EMA, as well as the potential Adam and Eve double bottom, all point to a price target of US$100. Further breakdown of price would likely mean a test of the all-time low level around US$30. The ZEC/BTC pair has essentially been in a perpetual downtrend since June 2017, with no signs of reversal at this point in time as price continues to push all-time lows.

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