In the fourth quarter of 2025, the cryptocurrency market witnessed a historic moment: the long-dormant privacy coin sector suddenly exploded, becoming the most dazzling dark horse of this bull market.

1. Market Wonder: The Comeback of Privacy Coins

Key Data Highlights:

● Zcash ($ZEC) surged from a low of $35 in August to a peak of $750 in November, with a three-month increase of over 2200%.

● The total market capitalization of the privacy coin sector surpassed $64 billion, with its proportion of the total cryptocurrency market capitalization rising from less than 1% to 2%.

● ZEC's daily trading volume exceeded $750 million, growing 20 times since the beginning of the year, with significant improvements in liquidity.

● Monero ($XMR) also strengthened, stabilizing above $400, with a market capitalization maintained at $7 billion.

This surge was not merely a result of market speculation but an inevitable outcome of the market rediscovering the value of privacy. Unlike the fleeting moment in the 2021 bull market, this round of increases was accompanied by substantial improvements in fundamentals, marking the official transition of privacy coins from the margins to the mainstream.

2. Fourfold Driving Forces: Unveiling the Logic Behind the Surge

1. Supply Side: Scarcity Accelerates Formation

● Zcash completed its second halving in November 2024, reducing the block reward from 3.125 coins to 1.5625 coins, compressing the annual inflation rate to below 1.8%. More critically, the ZEC locked in the shielded pool reached 4.9 million coins, accounting for 30% of the circulating supply, leading to a sharp contraction in the actual tradable supply and forming a positive feedback loop of "locking - scarcity - increase."

2. Demand Side: Privacy Awakening as a Turning Point

● The case in 2025 where the U.S. Department of Justice seized 127,000 bitcoins from a Cambodian gang completely exposed the vulnerability of transparent public chains in the face of national-level surveillance. High-net-worth users realized that once on-chain addresses are linked to identities, all transaction histories and asset scales will be fully visible, making privacy protection a "necessity" rather than an "option."

3. Technical Side: Maturity of Zero-Knowledge Proofs

● Zcash completed the Halo 2 proof system upgrade, completely removing the trusted setup threshold; the Orchard shielded pool unified address format, significantly improving user experience; the NU5/6 network upgrade enhanced transaction efficiency. The maturity of technology directly drove the adoption rate to soar, with the usage rate of shielded transactions skyrocketing from 5% to 30%.

4. Narrative Side: Collective Endorsement by Opinion Leaders

● BitMEX founder Arthur Hayes publicly declared Zcash as "the last thousand-fold opportunity," while Silicon Valley investor Naval Ravikant listed it as his second-largest bet, and Grayscale continued to operate ZEC trust products. These signals redefined the narrative logic of privacy coins—from regulatory lightning rods to strategic tools against financial surveillance.

3. Technological Evolution: Two Decades of Privacy Defense

Three Generations of Technological Evolution:

First Generation: Mixing Technology (e.g., Dash)

● Obscures the flow of funds by mixing multiple transactions but relies on participation scale, making it easy to crack with machine learning algorithms. As analytical techniques advance, the effectiveness of mixing has significantly diminished.

Second Generation: Protocol Layer Privacy (e.g., Monero)

Utilizes ring signatures, stealth addresses, and ring confidential transactions for triple protection, enforcing strong privacy by default. Its advantages include strong anonymity, but it faces two major challenges:

● Regulatory Pressure: The EU has explicitly listed it as a regulatory focus, forcing several exchanges to delist it.

● Technical Risks: With the enhancement of AI analytical capabilities, the anonymity of ring signatures is under threat.

Third Generation: Zero-Knowledge Proofs (e.g., Zcash)

Revolutionarily employs zk-SNARKs technology to achieve "proving transaction validity without revealing any information." Its unique advantages include:

● Optional Transparency: Supports dual-track operation of transparent and shielded addresses.

● View Key Mechanism: Allows users to selectively disclose transaction records to auditors.

● Cryptographic-Level Security: Mathematical proofs ensure absolute reliability of privacy.

Monero adheres to an "all or nothing" privacy philosophy, encrypting all transactions by default, which guarantees the integrity of the anonymous set but completely blocks compliance pathways. Zcash opts for a pragmatic route, seeking a balance between privacy and compliance, and this differentiated positioning has become key to its regulatory tolerance.

4. Regulatory Storm: 2027 as the Industry Watershed

Core Content of the EU Anti-Money Laundering Regulation (AMLR):

● Fully effective from July 1, 2027, prohibiting financial institutions from handling "anonymity-enhanced crypto assets."

● Specifically names mixing services, ring signatures, stealth addresses, and other technologies.

● Establishes an Anti-Money Laundering Regulatory Authority (AMLA) to directly supervise large crypto service providers.

● Violations can incur penalties of up to 10% of annual revenue or €10 million.

Industry Differentiation Intensifies:

● Exchanges like Binance and Kraken preemptively delisted Monero to avoid regulatory risks.

● Zcash, due to its "auditable privacy" capability, received some exemptions, with most exchanges retaining transparent address transactions.

● Monero's liquidity sharply declined, with buy-sell spreads widening to 8-12%, and trading costs skyrocketing.

The Zcash team actively communicates with EU regulatory bodies, demonstrating how the view key meets legitimate audit needs. The compliance manual released by EUCI in 2025 specifically mentions that "privacy technologies with selective disclosure capabilities" may receive exemptions, leaving policy space for Zcash.

5. Value Reassessment: Privacy as a Fundamental Need of Web3

Reconstructing Investment Logic:

1. From Speculative Tool to Strategic Asset

Privacy coins should no longer be viewed as short-term speculative targets but as defensive allocations within a portfolio:

● Hedging against systemic risks of transparent public chains.

● Responding to the strengthening trend of global financial surveillance.

● Capturing the spillover value of privacy technology.

2. Highlighting Scarcity Value

● ZEC replicates Bitcoin's supply curve, entering a supply contraction phase after the second halving. Coupled with 30% of the circulating supply locked in the shielded pool, the actual floating chips are extremely scarce. Historical experience shows that Bitcoin experienced a 30-fold increase after its second halving, and ZEC is expected to repeat this path.

3. Institutional Funds Quietly Positioning

● Grayscale's ZEC trust continues to operate, Pantera Capital holds long-term positions, and sovereign wealth funds and family offices are building positions through over-the-counter channels. If it converts to an ETF in the future, it will open up a larger institutional funding entrance.

6. Future Outlook: The Era of Privacy Infrastructure Arrives

Trend of Technological Diffusion:

Zero-knowledge proofs are spreading from privacy coins to become the underlying architecture of Web3:

● ZK Rollup has become the mainstream solution for Ethereum scaling.

● zkEVM supports private smart contracts.

● ZK identity achieves "minimized disclosure" verification.

● ZK machine learning protects data privacy.

Breakthroughs in Application Scenarios:

● Enterprise-level applications: Multinational companies use ZEC for private cross-border settlements.

● RWA on-chain: Tokenization of real estate and private equity must rely on privacy technology.

● DeFi Privacy: Users participate in liquidity mining without exposing their holdings.

Risk Warnings:

Investors need to be aware of potential risks:

● The probability of further tightening regulations still exists.

● Intense technological competition, with emerging privacy solutions potentially disrupting the existing landscape.

● Market volatility is severe, with short-term pullbacks possibly exceeding 50%.

7. Rational Layout Strategy

For Investors with Different Risk Preferences:

Conservative Allocation:

● Treat privacy coins as an "insurance strategy" within the portfolio, controlling the allocation ratio at 3-5%, with a holding period set for over 2 years, ignoring short-term fluctuations.

Aggressive Allocation:

● Conduct in-depth research on technological routes and team backgrounds, focusing on projects with compliance capabilities while paying attention to ecological investment opportunities brought by the spillover of ZK technology.

Key Decision-Making References:

● Closely monitor the implementation of regulatory policies in 2026-2027, especially the EU's final stance on "auditable privacy." This will be a key turning point in determining whether privacy coins can transition from the margins to the mainstream.

The revival of privacy coins signifies that the cryptocurrency industry is returning to its essence—seeking a third path of freedom beyond efficiency and fairness.

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