Zcash Tanks Double Digits After 'Meteoric Rise' Sees Leverage Build Up

Privacy-focused cryptocurrency Zcash has fallen 11% over the past 24 hours to a market capitalization of $18.5 billion, per Decrypt data, making it one of the biggest losers of the day.

One expert says this drop in valuation comes after its price has soared in recent months, which has led to a build up in leverage and amplified losses. Others say that growing concerns that AI can break cryptography faster than quantum computers are causing the privacy token to take bigger losses.

Luke Nolan, senior researcher at CoinShares, highlighted that Zcash's "meteoric rise" means that it is still up 460% from its March lows and that in a "fragile" crypto market the largest gainers tend to take losses too.

"There was a decent build-up of leverage on the way up as this is also a natural consequence of a strong move," Nolan told Decrypt. "More attention brings more perp traders to take on leverage, and when there is a sneeze, the moves get amplified as those leveraged traders are either forced to reduce exposure or get liquidated."

Over the past 24 hours, per CoinGlass data, $17.9 million worth of Zcash long positions were liquidated, a large figure compared to Hyperliquid's $7.3 million over the same period.

The race to quantum-proof Zcash

The price drop comes as other industry-wide concerns start to swirl, some of which could see positive upside for Zcash.

Last week, Ethereum co-founder Vitalik Buterin and Ethereum Foundation researcher Justin Drake warned that the industry needs to plan for "bunker mode" as AI could break crypto encryption before quantum computers do. The conversation was sparked after OpenAI published major progress in math, which presented concerns for the future of encryption.

"The OpenAI math breakthroughs has caused a lot concern in crypto given the conspicuous lack of cryptography proofs," Ryan Zurrer, founder and director of investment firm Dialectic, told Decrypt. "More complex privacy protocols such as Zcash have the most to lose in a zero-day event if core primitives are rendered obsolete against AI-driven cryptography attacks."

Zcash has been aggressive with its quest to quantum-proof the network. Zakura, a Zcash full node developer, recently said that its team expects to be quantum-proofed as well as reasonably AI-proofed by January. Its quantum-resistant roadmap "served as a key catalyst" for its recent rally, Tim Sun, senior researcher at HashKey, told Decrypt. "Although actual implementation is still some distance away, it indeed reflects the market's continuous focus on the privacy sector since the beginning of this year."

Privacy continues to be a major crypto industry talking point. Sun added that as traditional finance continues to merge with the crypto industry, the need for privacy will continue to rise.

"As an increasing volume of traditional financial assets and operations migrate on-chain, privacy protection will no longer be merely an optional add-on," Sun told Decrypt, "but rather a fundamental prerequisite for financial institutions adopting blockchain technology."

Last week, French lawmakers progressed a law proposal that would require citizens to report crypto holdings equal to or above €100,000 ($112,000), or otherwise face a penalty. The proposed law received significant backlash in the wake of a wave of crypto-related "wrench attacks," robberies, and kidnappings across the country. Although the law hasn't passed yet, some have looked to privacy protocols as government oversight looms.

Nolan from CoinShares highlights that investors should zoom out when looking at Zcash's recent performance, pushing back on recent narratives pushing its price down.

"I think the French proposed law had little to do with the move, and in my view, it's simply a larger pullback given the meteoric rise," Nolan told Decrypt. "When you put the drawdown in context on the daily chart, even though it's been 35%+, it looks like a blip in comparison to the upmove."