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Zcash and the Privacy Imperative

Mainstream attention on financial privacy comes in waves, often driven by technological change (Exhibit 1). The first wave came in the 1970s as computers facilitated the digitization and automation of financial record keeping.1 The second wave in the 1990s paralleled the growth of the internet and concerns about online privacy. We believe a third wave has started: a sustained shift in public and investor focus on financial privacy, prompted by the rise of AI.

AI tools seem all but sure to create the need for new privacy protections in many parts of the economy, but the issue is especially pressing for public blockchains, which are transparent by default. On the Bitcoin network, every transaction is visible on the public ledger. If this can be connected with offchain information, it could be used to de-anonymize user addresses—a risk mentioned in the Bitcoin white paper. This was possible before AI, but the technology could make blockchain address labelling more effective and more widely available.

We think Zcash will be one part of the solution. Shielded Zcash transactions, using the power of zero-knowledge cryptography,2 hide both transacting addresses and the amount being transferred. For users that prioritize privacy, this could become a “must have” feature.

Key Takeaway: We expect AI to create new threats to financial privacy, and to motivate a search for new solutions. Zcash, a Bitcoin-like digital currency with additional privacy features, may be one of those solutions.

Exhibit 1: Mainstream attention on financial privacy comes in waves

In addition to new technology, changes in US law also affected public perceptions about financial privacy in the 1970s. The key legislation bookended the decade: the Bank Secrecy Act of 1970, which required banks to retain customers’ (now digital) records, and the Right to Financial Privacy Act of 1978, which required government agencies seeking banking records to go through specified legal channels.

See the appendix in our Zcash primer on Zero-Knowledge Proofs, SNARKs, & STARKs.

Regime Shift: Bitcoin and the Return of the Debasement Trade

For much of the past year, amid an AI-driven rally in risk assets, Bitcoin traded more like a high-beta investment than a monetary hedge. But a reversal seems at hand: Bitcoin’s 90-day correlation with Nasdaq 100 has fallen from over 60% to roughly 33%, while its correlation with gold has risen from barely more than zero at the start of the year to above 50%.1 The shift may reflect renewed investor focus on Bitcoin’s scarcity, monetary independence, and utility as a store of value.

The regime change comes as the macro backdrop is once again bringing the debasement trade into focus. U.S. federal debt recently crossed $40 trillion, while the long end of the Treasury curve has sold off meaningfully over the past year.2 Larger debt balances, persistent deficits, and higher long-term yields have renewed the search for assets that can help hedge against deteriorating fiscal and monetary fundamentals.

Launched in the aftermath of the Global Financial Crisis, Bitcoin was designed for this type of environment, with no central issuer, a transparent issuance schedule, and a fixed maximum supply of 21 million coins. As fiscal imbalances grow and investors reassess the long-term purchasing power of fiat currencies, Bitcoin can serve as a scarce, liquid alternative alongside gold. That combination of scarcity and differentiated return drivers can make Bitcoin a compelling addition to a modern diversified portfolio.

Key Takeaway: Bitcoin and other scarce digital assets may be entering a more favorable regime as the market rediscovers their diversification benefits and potential resiliency against fiat debasement.

Exhibit 1: Bitcoin’s Correlation Is Shifting Toward Gold

Source: Bloomberg. Based on correlation of daily returns. Data as of August 24, 2026.

Source: Bloomberg. Data as of August 24, 2026.

Treasury Buybacks Treat the Symptoms Not the Disease

Last week, the US Treasury announced larger “buybacks” of long-maturity bonds: it will bid for Treasury notes and bonds in the open market and retire them after purchase. All else being equal, this reduces the risk-adjusted supply of Treasury bonds and can be considered a mild form of economic stimulus.1

That buybacks are needed at all is the problem: heavy growth in government debt is driving up the cost of borrowing. The Treasury is treating the symptoms (rising bond yields) because they cannot cure the disease (structural deficits).

On the same day last week as the buyback announcement, the Treasury also said the US public debt exceeded $40 trillion for the first time (Exhibit 1).2 The debt stock has been rising almost continuously since the global financial crisis (GFC). Initially this had little bearing on interest rates because the housing bust meant the private sector was cutting back on borrowing. Now the private sector is borrowing heavily to fund the AI buildout. Too much borrowing is pushing up interest rates consistent with textbook economics.

Unchecked government debt growth undermines the credibility of fiat currencies and drives investors to seek out alternative stores of value like physical gold and certain cryptocurrencies—in digital assets we think the so-called “debasement trade” will primarily benefit Bitcoin, Ethereum, and Zcash.

Key Takeaway: Treasury buybacks treat the symptoms of structural budget deficits. Unchecked government debt growth may drive investors to alternative stores of value, in our view, potentially benefiting Bitcoin, Ethereum, and Zcash, among other digital assets.

Exhibit 1: Rising public debt is putting upward pressure on bond yields

Buybacks do not reduce the nominal supply of debt held by the public unless the Treasury draws down its cash balance at the Federal Reserve. However, the weighted-average maturity of newly issued Treasury bills, notes, and bonds is much lower than the average maturity of the bonds it is buying back. Therefore, assuming the issuance schedule does not change, buybacks reduce the risk- or duration-adjusted supply of debt.

Source: Daily Treasury Statement for Aug 18, 2026, released Aug 19, 2026.

Zcash Can Challenge Bitcoin’s Network Effects

Bitcoin was the first decentralized digital currency and is still by far the largest. Many alternatives have emerged over time (e.g., Litecoin), but none has made a serious challenge to Bitcoin’s network effects. Due to a combination of technology and timing, Grayscale Research believes Zcash—a Bitcoin-like digital currency with privacy features—has a real shot of doing just that.

The crypto asset class can be organized into categories based on the use case of the underlying blockchain technology. Grayscale uses our proprietary Crypto Sectors framework, developed in partnership with FTSE/Russell. Bitcoin is king of the Currencies Crypto Sectors, accounting for 93% of that category’s market capitalization (Exhibit 1). Bitcoin benefits from deep network effects that limit competition from alternative digital currencies. It is so dominant in this category that many investors do not diversify beyond Bitcoin.

Exhibit 1: Bitcoin dominates the Currencies Crypto Sector

But Zcash has features that Bitcoin does not , and these features may be critical in an age of AI. Bitcoin has first mover advantages, but Zcash arguably has second mover advantages—it benefits from features that were not possible or were less relevant when Bitcoin first took off. These include:

Financial privacy, which may become essential in an era of AI-powered surveillance.

Active development to head off cybersecurity risks, including eventual threats to classical cryptography from quantum computing.

Cross-chain reach powered by the “intents” technology built into modern blockchain wallets. Zcash does not require widespread merchant adoption—you (or your AI agent) can use it as a private asset hub with universal connectivity through intents.

The price of Zcash (ZEC) is already up ~19x over the last year, but it is still valued at less than 1% of Bitcoin’s market cap.¹ In our view, this is a sign that the Currencies Crypto Sector is ripe for competition, and that Zcash has the right ingredients at the right time. Investing in Zcash should be considered high risk, and even if it is successful, it is unlikely to appreciate in a straight line.

Many users value Bitcoin’s transparency, simplicity, and liquidity, and these features may support its dominant market position. But Grayscale Research believes that the value of financial privacy, as well as Zcash’s other unique features, may be underpriced. If correct, the price of ZEC may still have significant upside (Exhibit 2).²

Key Takeaway: Bitcoin is supported by network effects, so any competing digital currency needs “must have” features. Zcash offers financial privacy and other attributes that users may find essential in an age of AI. We think it is still undervalued and can continue to capture market share.

Exhibit 2: Zcash (ZEC) price has the potential for upside if it can capture market share

Source: Artemis. Data as of August 24, 2026. Past performance is not indicative of future results.

Analysis assumes horizon is 5yr and takes into account ZEC supply growth.

Is This a Good Time to Buy Bitcoin?

Grayscale Research advocates for considering Bitcoin in diversified portfolios and generally discourages investors from trying to time the market. Nonetheless, we often receive a simple question: how do I know if it’s a good time to buy Bitcoin? Because Bitcoin is a commodity, not a cash-flow-paying asset like stocks and bonds, many investors struggle with the tactical decision, and this holds them back from making any allocation at all.

No one knows for sure how Bitcoin will perform in the future. But to decide whether the current price may be an attractive entry point, consider these three questions:

Is the structural adoption trend intact? We think so, given unchecked government debt growth, rising use of blockchain technology across financial services, and a generational shift in portfolio construction.

Where are we in the market cycle? Like many commodities, Bitcoin has recurring bull and bear market phases (Exhibit 1). We are currently 10 months into the latest Bitcoin bear market. Past bear markets have lasted 11-12 months.1

What is the outlook for macro risks? Like virtually all major assets, Bitcoin’s price is influenced by macro variables, including real interest rates. If the Fed hikes rates in the near future, Bitcoin’s price may have more downside. If not, we may have already seen the bottom.

To put a fine point on it: As we ourselves consider the questions above, we think all three suggest current prices may offer a favorable entry point for investors with long-term horizons. The structural adoption trend is intact, we are deep into the bear market, and the macro outlook looks broadly favorable. Of course, time will tell.

Key Takeaway: Investors trying to determine if now is a good time to buy Bitcoin should consider structural adoption trends, the state of the cycle, and macro risks. We think all three factors combine to make this a favorable entry point for investors.

Exhibit 1: The current Bitcoin bear market is getting a little long in the tooth

Based on the mean and median of the four prior cyclical bear markets. Source: Grayscale Investments, based on data from Coin Metrics. Data as of August 2026.

SEC’s “Reg Crypto” Lays Groundwork for Token-Based Fundraising

The Securities and Exchange Commission (SEC) proposed, on August 18, Regulation Crypto Assets (“Reg Crypto”), a new set of rules for entrepreneurs to raise capital on blockchain infrastructure. This is not about tokenizing stocks—the process of moving existing public equities onto blockchain rails. This is about newly issued tokens as a type of capital formation. If permitted within the US financial system, growth in token-based fundraising may drive value to blockchain networks like Ethereum, Solana, and BNB Chain.

Fundraising through token offerings already exists but has been hindered by regulatory ambiguity. Famously, during the 2017-18 crypto cycle, many startups used initial coin offerings (ICOs) to raise capital (Exhibit 1). More recent iterations have included initial exchange offerings (IEOs) and initial DEX1 offerings (IDOs)—all of which deliberately took place overseas and were not offered to US investors. There is already well-known academic research examining the potential benefit of tokens for new capital formation.

While there has been apparent demand for new token offerings, there is currently no clearcut path for would-be issuers to come to market under existing US securities laws. This is what Reg Crypto is intended to address. It would create a tailored regime for issuing tokens up to certain fundraising limits upon satisfying eligibility and disclosure requirements. It also acknowledges that some crypto protocols can eventually become automated and decentralized, such that registration and disclosure requirements may no longer apply—building on the agency’s March 2026 interpretive guidance.2

The proposed rules would substitute for parts of the CLARITY Act, which now looks less likely to pass the Senate. Commissioner Uyeda said that Reg Crypto is partly intended to reduce the incentive for issuers to move offshore—a potential risk without clear guidelines in the US. A separate “innovation exemption” from the SEC is also anticipated later this year.3

The bottom line for investors is that token-based fundraising is a potentially important use case of public blockchain technology—like stablecoins, tokenized securities, and decentralized exchanges. If the new rules can stimulate more issuance activity, that will bring more US issuers and investors onchain and likely drive value back to the underlying blockchains and their native tokens, including ETH, SOL, and BNB.

Key Takeaway: The SEC has proposed Reg Crypto, a set of rules that would facilitate token-based fundraising. This blockchain use case has been hindered by regulatory ambiguity, but the new guidelines could help unlock and drive value to the underlying networks, such as Ethereum, Solana, and BNB Chain.

Exhibit 1: The ICO boom demonstrated the demand for token-based fundraising

Decentralized exchange (DEX).

The SEC distinguishes between tokens, which are generally not securities, and investment contracts, which are subject to regulation. Under Reg Crypto, the investment contract will cease if the issue “has completed or otherwise permanently ceased all essential managerial efforts.” This is known as the Investment Contract Safe Harbor.

The innovation exemption is expected to cover trading and market structure guidelines.

When Bitcoin Markets Go Quiet: A Herald for Change?

After a turbulent start to 2026, this summer has proved much calmer for Bitcoin price action. Spot BTC trading volumes and realized volatility have fallen to cycle lows, and markets have showcased a degree of headline fatigue. Options market pricing is consistent with calm waters over the near-term: 1-month implied volatility has slid to just 32% (vs YTD average of 42%).1

But quiet phases for BTC markets rarely last long. The last time trading volume and price volatility were this subdued was the summer of 2023—a period that ultimately marked the end of the prior bear market. Like this year, Bitcoin spent much of that summer rangebound, with investors waiting for a catalyst. As selling pressure from the prior cycle eventually faded, Bitcoin broke out of its summer range, gaining about 50% from the start of October through year-end.2

Today’s potential catalysts are different, but the setup rhymes: subdued trading, compressed volatility, and a market waiting for clarity on macro policy and regulatory advancement. Low action across markets is not necessarily a bullish signal on its own, but summer 2023 reminds us that quiet markets can coincide with important transitions beneath the surface. The current lull may also point to exhausted selling pressure, leaving Bitcoin oversold relative to past market conditions.

Key Takeaway: Bitcoin markets are quiet, but history suggests that lulls can still mark important turning points, as the fall of 2023 demonstrated.

Exhibit 1: Muted BTC spot trading volume and volatility are reminiscent of 2023

Glassnode. Based on at-the-money (ATM) implied volatility for options contracts expiring 1 month. Data as of August 13, 2026.

Glassnode. Data as of August 13, 2026. Past performance is not indicative of future results.

Ethereum and Solana Tokenomics Under Review

Ethereum and Solana—two of the largest blockchain networks powering stablecoins and tokenized assets—are considering changes to their tokenomics. The networks’ native tokens, ETH and SOL, are digital commodities priced through supply and demand. Both may introduce code changes that cut annual inflation and therefore reduce future token supply. All else being equal, lower supply growth may support higher prices.

In both cases, the changes are highly technical (see here for details), but the bottom line is that both ETH and SOL are becoming relatively scarce, and the proposals under discussion would result in lower inflation and even more scarcity.

Exhibit 1 compares estimated annual token supply inflation for Bitcoin (BTC), ETH, and SOL over the next five years, assuming the new changes are implemented. By the end of 2031, inflation for both BTC and ETH would be just ~0.4% per year, and for SOL just ~1.1% per year. This compares to annual supply inflation of 1.8% for gold1 and 3.3% for US CPI inflation.2

The proposed changes are currently being debated by their respective communities. The Solana proposals seem to have broader agreement and have a better chance of being implemented.

If the changes go through, token holders who stake would receive fewer tokens, because staking rewards are paid through new token inflation. However, with fewer tokens in circulation, scarcity value may increase, putting upward pressure on prices. Holders of unstaked ETH and SOL could be better off. Whether stakers are better off depends on the net effect of lower token rewards and potentially higher token prices.

Key Takeaway: ETH and SOL are digital commodities powering two of the leading blockchains for stablecoins and tokenized assets. Changes under consideration would increase the scarcity of both assets and could put upward pressure on prices.

Exhibit 1: Changes to Ethereum and Solana would reduce token inflation

Source: World Gold Council, Grayscale Investments. Estimate is annualized percent change in above ground gold stock from 2015-2025. Data as of August 2026.

Source: BLS, Grayscale Investments. Estimate is annualized percent change in US CPI in the ten years ending June 2026. Data as of August 2026.

Three Reasons Why Bitcoin Adoption Will Keep Rising

Bitcoin’s price has begun to stabilize, and we may be nearing the end of the latest bear market. Regardless of how the short-term price action plays out, we see a few key reasons why Bitcoin adoption can continue rising over the medium- and longer-terms (Exhibit 1):

1. Unchecked government deficits: continued unsustainable government debt growth raises the risk of persistent inflation and currency debasement, and could drive increasing numbers of investors of all types to scarce assets and alternative stores of value.

2. Adoption of blockchain technology: stablecoins and tokenization will make blockchains ubiquitous across financial services, in our view. As the spread of the technology continues, many more intermediaries will have the necessary infrastructure (and regulatory clarity) to transact and store balances in Bitcoin—it will no longer be structurally apart from the rest of the financial system.

3. Generational change in portfolio construction: younger investors have a much bigger appetite for digital assets, and alternatives are now a standard part of portfolios. We expect institutions, wealth management platforms, and individuals to continue incorporating Bitcoin into diversified portfolios through exchange-traded products (ETPs) and other vehicles—a process already well underway.

Key Takeaway: The Bitcoin bear market has not changed our expectation for rising Bitcoin adoption over time. We believe that adoption will be driven by more demand for scarce assets, greater adoption of blockchain technology, and generational change in portfolio construction.

Exhibit 1: The number of Bitcoin holders continues to rise

Why AI Needs Blockchain Technology

Artificial intelligence and public blockchains are complementary. As AI creates demands that traditional systems were not designed to meet, public blockchains offer new solutions (Exhibit 1). We have identified three areas where we believe the adoption of AI will create the most demand for blockchain technology: agentic finance, record keeping for computation and reputation, and decentralized AI alternatives.

Payments and finance provide the clearest examples. To act on our behalf, AI agents will need programmable wallets that can hold and deploy capital without intermediaries. Their activity will drive demand for micropayments, instant cross-border settlement, and automated trading and risk management. Public blockchains like Ethereum and Solana enable exactly this.

AI agents also create the need for verifiable records of computation, online human identity, and agent reputation. As enterprises delegate more decisions to AI, they will need to verify how those decisions were produced—including which models, data, and rules an agent used. Users, meanwhile, must be able to distinguish humans from agents online; for example, a social network may need to verify that an account represents a unique person without requiring that person to reveal their identity. Agents will also need trusted records of reputation before performing high-stakes tasks such as making investments or purchasing goods on a user’s behalf. Public blockchains—and applications built on them, such as Worldcoin's identity service—can anchor these records in transparent, neutral infrastructure rather than place them under the control of a single corporation or government.

Finally, decentralized networks offer an alternative to centralized AI ownership and governance. AI is concentrating capital, compute, and control among a handful of frontier labs and hyperscalers, raising concerns about governance, bias, and censorship. Decentralized networks like Bittensor offer a fundamentally different approach: global, open AI ecosystems that anyone can access, contribute to, and own a stake in.

Key Takeaway: AI adoption will increase demand for public blockchains as programmable financial infrastructure; a verifiable record layer for computation, identity, and reputation; and a foundation for open, user-owned AI ecosystems.

Exhibit 1: Public blockchains can meet the emerging needs of the AI economy