Zcash Price Analysis







Zcash was founded by cypherpunk Zooko Wilcox-O’Hearn in 2016. It is the first open, permission-less cryptocurrency that can fully protect the privacy of transactions using zero-knowledge cryptography. What makes this significant? Zero-knowledge proofing is an innovative cryptographic technology and its usage for encryption is creating a significant buzz in the financial and crypto markets. It involves a prover being able to prove something to a verifier to be true, without revealing any other information about it other than it being true.

If the tech can be made widely applicable, the user privacy and security offered by the Zcash system could be a game changer for financial transaction systems. That’s the upside. Not surprisingly, though, the same privacy architecture also raises concerns for regulators in terms of how it might affect the monitoring of KYC and AML protocols.

Exchanges and trading pairs

Zcash currently trades at $258.27 (Indexed price), up 4.5% since the announcement of its listing on the Winklevoss twins-backed Gemini exchange on the 14th of May (Zcash trades went live on Gemini on the 22nd of May). Its current market cap sits at $1,303,372.821 with a total supply of 3,967,506 tokens.

Currently, the most popular trading pair is BTC/ZEC which dominates the volume in the market making up nearly 56% of it. However, we can expect that percentage to change as there is now a fully licensed fiat-to-crypto on-ramp option provided by the Gemini exchange. The aforementioned liquidity and assurances the deal provides to institutional investors means we may see a rise in popularity of the ZEC/USD pair. Currently, the most popular exchange for Zcash is Binance, likely due to its low fees.

The importance of privacy

The ability to safely protect and encrypt financial data is critical in the fintech space. The Zcash zero-knowledge-proof protocol is considered to be superior to the protections offered by both Bitcoin and Ethereum, and therefore has caught the eye of major names in banking including JPMorgan, UBS and Barclays.

The issue banks have had with Bitcoin and Ethereum transactions is that all a user’s transactions are listed on an address that exists on a public ledger. If this address could be tied to an identity, then the anonymity that the blockchain should provide, vanishes.

Zcash is built on Bitcoin’s core code but has the zero knowledge proof X-factor of offering multiple privacy options for any transaction made on its blockchain. The nodes can verify a highly private, hidden transaction because of ZK-Snark proofs, that perform computations on inputs without revealing information on the inputs, and then miners verify the ZK-Snark without ever interacting with information like the transaction amount.

One major difference between Zcash and some other privacy-focused coins, is that shielding transactions is optional, unlike blockchains such as Monero, which have their privacy features working for all transactions. Interestingly, shielded transactions make up only around 14% of all transactions made on the Zcash ecosystem which is low considering that the encryption solution is what Zcash vaunts as its major selling point.

The reason for this is likely because much of the third-party support for ZCash, from exchanges such as Kraken and Shapeshift, as well as wallets like JAXXs and Trezor, only support the transparent, un-shielded form of Zcash transaction. The shielded transactions have been said to create engineering issues because of their mathematical complexity, meaning high CPU strain and costs. This means it has been simply easier for third parties to offer only the transparent option. This is also the case for the Gemini exchange listing.

What this seems to indicate is that most of the volume movement in Zcash is driven by speculative purchasing and not because the market is interested in the token for its privacy solutions. This isn’t necessarily a bad thing as there is always the future to consider with the Zcash team working on making shielded transactions more applicable to third parties. Exchanges have also not written off supporting the shielded transaction feature, meaning the believers in Zcash’s cryptographic encryption method may just have to be patient and wait for wider acceptance of the privacy revolution Zcash hopes to deliver.

Short-run bullishness

Zcash was one of the only major cryptocurrencies to have a post-Consensus 2018 rally, (though prices have stabilized since then). The Winklevoss twins winning licensed approval to trade it on their Gemini exchange, as well as offering a Fiat on-ramp for it in the form of a ZEC/USD pair is important for several reasons.

ZEC 30 day price trend - orange line indexed price

It means greater liquidity, which builds confidence with traders who may have been interested, but sceptical about buying in for infrastructure reasons. Zcash finds itself amongst a very select group of cryptos chosen to be listed on Gemini. The exchange currently only trades the BTC/USD, ETH/USD and BTC/ETH pairs with announced plans to include Bitcoin cash and Litecoin soon. Gemini is also the first crypto exchange to offer multi-user accounts classified by administrator, manager, trader and auditor. This is ideal for something like a trading desk, which typically has a hierarchy and a group using the same funds.

Gemini has strong relationships with powerhouse financial institutions like NASDAQ, and Zcash is significant on Gemini because it is the exchange’s only privacy-focused coin. The Winklevoss twins picking Zcash as their ‘anonymity’ token of choice sends strong signals to the market as to the robustness of Zcash and its long term potential.

The agreement additionally eases many of the regulatory concerns associated with Zcash. Concerns which have consistently followed it because of its obvious potential to be used for money laundering/illegal activities.

However, Zcash has been said to be less popular with money launderers than similar currency like Monero, because of its inability to operate on simplistic burner phones popular with the criminal underground.

The fact that Zcash been through a rigorous vetting process and is compliant with New York DFS standards is good news for holders of the coin and should send FOMO signals to traders looking to diversify their portfolios with legitimized alt-coins.

Concerns around governance

One potential flaw with Zcash is its top-heavy governance. In October of 2016 limits on the supply of ZEC tokens set at launch, coupled with excess demand and hype for the coin, led to massive inflation with prices as high $8,000. Prices quickly stabilized but the episode left a sour taste for early backers of Zcash as a reliable crypto investment.

Zcash 5 year prices - orange line Indexed price

Zcash also has a unique block reward system. It currently has a planned distribution of 21 million coins. 20% of the supply mined in the first four years (2.1M coins) going to the founders as a reward, the remaining 80% going to the miners. Many see a problem with a founders reward/genius tax because of the obvious centralization and overall message of set hierarchy it sends to the community.

These sticking points were the reasons behind the creation of Zclassic, a coin based on Zcash but community-driven with flat governance. It offers investors the same distributed-ledger security protocol that Zcash does, but without features like the founders mining fee. It also promises to ensure issues like hyperinflationary episodes never happen.

Most coins endure growing pains and dissention when building and Zcash is no different. Compared to Zclassic it has much greater liquidity, visibility, buzz and prospects, and as such is probably more attractive to investors and traders. Whereas Zclassic, as was the case Ethereum Classic after the DAO hack, may appeal more to enthusiasts who feel strongly about ideological issues like governance.

Zclassic 30 day price trend - orange line Indexed price

Technical analysis

ZEC technicals are currently mixed and bearish. Its recent surge in price (~50%) and sentiment was heavily driven by its listing on the Gemini exchange. However, the majority of the ~50% increase has been erased since the announcement, with price trends now mixed at best and pointing bearish at worst.

Exponential Moving Averages (EMA) with Volume Trends

On the daily chart, the bullish EMA recross, or Golden Cross, using the 50/200 day EMA, has not occurred and price has recently fallen through the 50 day EMA (blue line). Additionally, volume increased sharply after the Gemini announcement (red curve) but has since faded away. For the positive trend (black arrow) to continue for ZEC, increased buying volume across all exchanges will need to occur consistently.

Ichimoku Clouds with Slow Wave Trend Oscillator (SWTO)

The Ichimoku Cloud uses four metrics 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, Lagging Span (Chikou), and Senkou Span (A & B).

The status of the current Cloud metrics on the daily time frame with singled settings (10/30/60/30) for quicker signals are mixed; price is in the Cloud, Cloud is bullish, the TK cross is bullish, and the Lagging Span is below the Cloud and price.

A traditional long entry would occur with a price break above the Cloud, known as a Kumo breakout, and the price holds above the Cloud. From there, traders could use either the Tenkan or Kijun as their trailing stop.

Price attempted to break above the Cloud but failed three times (black arrow) to hold the level of ~$380 before re-entering the Cloud. Price currently sits at $261, where the Senkou A (green line) is acting as support. Price is still in the Cloud while the TK cross remains bullish. However, the Slow Wave Trend Oscillator is currently bearish and not near an oversold area. If the Senkou A support level does not hold, then a retest of the Senkou B and support levels of $232 (red arrow) and psychological $200 (blue arrow) are likely. If support holds, price will need to breakthrough the Senkou B resistance level of $292, and hold that price above the Cloud for a resumed positive trend.

The status of the current Cloud metrics on the daily time frame with doubled settings (20/60/120/30) for more accurate signals is slightly bearish; price recently went beneath the Cloud, Cloud is bearish, TK cross is bullish, and the Lagging Span is in beneath Cloud and price.

Again, a traditional long entry should not occur until a bullish TK cross and Kumo breakout, coupled with volume. Price is currently testing the Senkou A support level. If that level does not hold, price is likely to retest $232, $200, and possibly $175 (blue line). If Senkou A support does hold, price will need to breach the Cloud at likely resistance levels of $342 and $369 (flat Senkou B levels). From there, price will need to hold above that level with volume before marching off to $453 (flat Senkou B level).

Ichimoku Clouds with Slow Wave Trend Oscillator and Fibonacci Retracement

Using the daily time frame with slower settings (20/60/120/30) coupled with fibonacci retracement levels we can see that the current support level of ~$260 coincides with Senkou A support level and fibonacci level (0.236) from ZEC’s previous peak. These factors may provide stronger support to price than expected. However, if support does not hold, $232, $200, and $175 are all possible price targets.

If support does hold, price targets are $342 (Senkou B), $369 (Senkou B), and longer term possibility of $453 (Senkou B and 0.618 fibonacci retracement level).

Conclusion

Zcash has some important backers in the technology space. Crypto heavyweight Vitalik Buterin has backed its tech and so has Naval Ravikant, a major Angel Investor and popular business developer in the crypto world. One of the most interesting endorsements comes from Edward Snowden, who backed its safety and structure over Bitcoin and Monero.

This backing, plus the success Zcash has had building institutional partnerships, means it has a pedigree that differentiates it from many directly competing coins.

A question arises as to what more third party deals mean for Zcash’s privacy promises. How does Zcash stand by its original ethos of maintaining the highest levels of privacy and anonymity for holders, while also accepting the demands that authorities and institutions make with regards to sharing transaction data for purposes like legal investigations?

The answer to this question remains unclear and somewhat out of Zcash’s hands. If users of the infrastructure listing Zcash agree to share information with the exchanges, and then the exchanges report on their trading activities using Zcash, then there is not much they can do.

Nonetheless, Zcash securing partnerships like the Gemini one are important steps in improving crypto infrastructure and in ensuring that digital currency movements are safe, fair and legal.

Zcash is a currently a standout among privacy-specializing alt-coins and has represented strong returns post-Consensus 2018. Given its vindication from regulators and institutions, investors are justified in being optimistic about its future.

In the shorter term, however, technicals have swung bearish. The prudent, short term trader will wait to see if price can maintain the bullish TK cross and breakthrough the Cloud (above the $292 resistance level) successful on (10/30/60/30) settings before entering a long position. Whereas, the prudent, longer term trader will wait for a bullish Kumo breakout (above the $342 resistance level) and TK cross on (20/60/120/30) settings before entering a long position.

Given the current state of price being primarily beneath the Cloud coupled with the bearish SWTO (and not near oversold territory), the downside scenario appears more likely right now with price targets of $232, $200, and $175 all in reach. If price manages to hold the current support, breakthrough the Cloud, and hold a positive trend. Then, the price targets of $342 and $369 are more likely to come into focus.

Disclaimer: This analysis has been designed for informational and educational purposes only. Readers are advised to conduct their own independent research into individual assets before making a purchase decision.



About the authors

Christopher Brookins

Christopher Brookins is the founder and CEO of Pugilist Ventures, a quantitative investment firm focused on digital assets and blockchain technology. Chris has a deep knowledge and unique perspective on digital assets formed by his polymath experience in equity trading, credit investing, and business development at two West Coast startups (one acquired). He has been involved in the blockchain community since 2014. Follow @chris__brookins

Aditya Das

Aditya Das is Brave New Coin's in-house market analyst. Raised in Dubai, UAE, he holds a post-graduate honors degree in Economics from the University of Auckland and a BA in Economics from the University of Sussex. Prior to joining BNC his most recent roles were as a researcher and Economics tutor at the University of Auckland.

‏Source bravenewcoin.com





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