Grayscale says Zcash can challenge Bitcoin’s network effects as privacy demand grows

ZEC has climbed roughly 19-fold in a year, yet Grayscale says its sub-1% share of Bitcoin’s market cap leaves room for further upside.

Zcash could emerge as a meaningful challenger to Bitcoin’s dominance among digital assets as the rapid adoption of artificial intelligence puts a premium on financial privacy and fuels concerns over AI-powered surveillance, according to Grayscale. 

In a new research report, Grayscale head of research Zach Pandl said Zcash (ZEC) has “second mover advantages” that could help it challenge Bitcoin’s (BTC) entrenched network effects, something previous alternatives such as Litecoin (LTC) have failed to achieve.

Central to Pandl’s argument is financial privacy. Zcash can shield transaction information, which Grayscale argues could become increasingly valuable as AI systems become better at analyzing financial activity at scale.

The report comes after ZEC’s roughly 19-fold increase over the past year. Despite those gains, Zcash remains valued at less than 1% of Bitcoin’s market capitalization, a disparity Grayscale sees as evidence of further upside if Zcash can capture market share.

Pandl acknowledged that Bitcoin’s liquidity and entrenched network remain powerful defenses of its dominant position. Grayscale also warned that Zcash remains a high-risk investment and that any further gains could be volatile and uneven.

Zcash could be valued at more than $4,000 if its market capitalization reached 5% of Bitcoin’s. Source: Grayscale

Related: Zcash’s Ironwood upgrade faces possible delay over infrastructure readiness

Zcash ecosystem attracts institutional capital

Interest in the Zcash ecosystem is broadening alongside ZEC’s strong price performance. As Cointelegraph recently reported, Nasdaq-listed privacy technology company Cypherpunk Technologies expanded its Zcash exposure by acquiring a mining fleet from Winklevoss Capital in a $33.33 million equity-based transaction.

The operation is already online across US facilities, producing about 4.2 GSol/s of Equihash hashrate, or roughly 18% of the Zcash network’s total computing power. Cypherpunk said the deal made its mining arm the network’s largest active fleet.

Related: Strategy’s $66B Bitcoin machine hinges on capital markets, not BTC price: Report