The digital assets space is capping off a turbulent quarter marked by losses, strained market infrastructure and investor disappointment. But one area of the market stood out: privacy-focused cryptocurrencies.
According to Grayscale's latest quarterly market summary, privacy emerged as an unexpected investment theme within the fourth quarter, with assets resembling Zcash (ZEC) significantly outperforming the broader crypto market.
The price of Zcash surged within the fourth quarter, rising from around $50 in mid-September to a high of nearly $700 in mid-November, data from CoinMarketCap shows.
The performance coincided with a pointy increase in Zcash's use of protected addresses, which hide transaction details resembling sender, recipient and amount.
Zcash's protected offering is growing because privacy is a priority. Source: Grayscale
Other privacy-friendly cryptocurrencies also posted relative gains within the quarter, including long-established projects resembling Monero (XMR) and Dash (DASH), highlighting renewed investor interest in privacy-focused blockchains.
Defensive positioning within the private sphere?
Grayscale attributed the unexpected rise in privacy-focused cryptocurrencies partially to what it called “more defensive positioning inside crypto markets.”
In Grayscale's sector framework, these privacy tokens fall into the “currencies” sub-sector, which incorporates assets used primarily as mediums of exchange or stores of value moderately than as application platforms.
While the currencies subsector fell greater than 15% throughout the quarter, it still performed significantly higher than other segments, including financials, smart contract platforms, consumer and culture, and artificial intelligence.
Gains in privacy-focused cryptocurrencies helped the currencies subsector outperform other segments within the fourth quarter. Source: Grayscale
Historically, defensive positioning in crypto markets has often focused on Bitcoin (BTC), which some investors viewed as a type of digital gold during times of macroeconomic uncertainty. However, in recent times, Bitcoin has tended to trade more closely in keeping with broader stock markets, particularly technology stocks.
This relationship showed signs of strain within the fourth quarter as correlations weakened as a consequence of structural tensions across the crypto sector, including the market-wide liquidation on October 10, which analysts described as “controlled deleveraging.”
