Analysts are divided on this, with some seeing it as a protest against surveillance, while others see it as a surge in vulnerability at the end of the economic cycle amid shrinking high-risk sectors. Over the past six weeks, the cryptocurrency market capitalization has evaporated by more than $1 trillion, as traders have dumped speculative assets. Total market capitalization has fallen from a peak of over $4.3 trillion in early October to just over $3.1 trillion, a drop of approximately 25%-28%. Bitcoin's price has fallen nearly 30% from its all-time high of over $126,000 in early October and is currently trading just over $90,000. Against this backdrop, one of the strongest performing sectors, and also the most volatile, is privacy coins. Since late summer, Zcash's price has surged a hundredfold, with its market capitalization soaring from less than $1 billion in August to over $7 billion in early November. It briefly surpassed Monero to become the most valuable privacy coin. Meanwhile, Zcash rapidly climbed to the top of Coinbase's internal search rankings, with user search volume exceeding that of Bitcoin and XRP, indicating a rise in retail investor interest. Analysts say the combined effect of soaring prices and surging search volume foreshadows a typical hot trade. The complexity lies in the fact that this is happening in a market facing increasing regulatory pressure, exchange delistings, and sanctions-related scrutiny. Privacy Coins as Outliers: Data and Narratives The latest surge was clearly led by Zcash (ZEC), with Monero (XMR) lagging far behind. Key data cited by analysts includes: On some major trading platforms, ZEC has risen by over 200% in a month. From its late summer lows, ZEC's peer-to-peer volatility has achieved triple-digit percentage gains. XMR has also risen, but by a much smaller margin than ZEC, which briefly allowed ZEC's market capitalization to surpass XMR's. Despite the rebound, ZEC is still trading well below its all-time high. Explanations can be broadly categorized into two types: One focuses on structural and technical factors, including the reduced issuance as the halving progresses and the planned NU6.1 upgrade, which will transfer more control of funds to token holders. The other points to narrative and market structure, including overly high investor expectations for prices, regulatory concerns, a thin order book, and short squeezes in relatively small market segments. Most observers believe this rally comes at a time when regulatory and policy shifts are unfavorable to anonymous assets.
Regulation is moving in the opposite direction
Globally, privacy coins are entirely within the scope of anti-money laundering (AML) discussions.
Since 2019, the Financial Action Task Force (FATF) has applied all of its AML and counter-terrorist financing (CFT) standards to virtual assets and virtual asset service providers (VASPs), including the "travel rule" requiring the inclusion of sender and recipient information in eligible transfers.
A targeted update in 2024 found that approximately three-quarters of the jurisdictions assessed were still only partially or completely non-compliant with Article 15 recommendations, and approximately 30% had not yet legally implemented the travel rule. The FATF also specifically noted the concerning trend of illicit actors increasingly using cryptocurrencies that enhance anonymity.
In Europe, the direction is clearer.
According to legal and policy analysis, new EU-wide anti-money laundering rules, centered on Regulation 2024/1624 and related legislation, will ban the use of anonymous cryptocurrency accounts and privacy coins on licensed platforms by 2027. Crypto asset service providers will be required to implement bank-style anti-money laundering controls, verify the beneficial owners behind wallets interacting with their services, and gradually phase out support for fully anonymous tools. However, this does not mean that holding these assets is illegal everywhere. But it does mean that infrastructure is being redesigned in most regulated financial systems, predicated on privacy tokens being restricted or excluded. Delisting, shrinking trading venues, and liquidity risks: The regulatory environment has begun to reshape where and how privacy coins are traded. Key Shifts: In 2024, nearly 60 privacy coins were delisted from centralized exchanges, the highest number since 2021. Monero saw the most removals, with Dash (DASH) and several other cryptocurrencies also affected as exchanges re-evaluated their anti-money laundering policies. Binance restricted or canceled trading of XMR, ZEC, and DASH for users in several European jurisdictions, citing local regulations and compliance. Kraken announced at the end of 2024 that it would cease XMR trading and deposit services for European Economic Area (EEA) customers, with withdrawals ending at the end of the year, explicitly mentioning EU regulatory changes, including the Crypto Asset Markets (MiCA) framework. These measures could create typical liquidity problems. During market rallies, thinly traded markets can experience significant volatility due to relatively small inflows. As trading shifts from well-funded large platforms to smaller or less regulated ones, it becomes more difficult for large holders to exit the market without causing price volatility. The same structure can trigger sudden spikes or increase the risk of price "vacuums" during market downturns. Sanctions Spillover Effects, Court Proceedings, and Compliance Anxiety Sanctions and enforcement actions add another layer of uncertainty. In 2022, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) imposed sanctions on Tornado Cash, accusing the Ethereum-based mixer of laundering billions of dollars. In late 2024, a U.S. appeals court ruled that sanctioning immutable smart contracts exceeded the Treasury Department's authority. In March 2025, OFAC officially lifted sanctions against Tornado Cash. However, the legal risks did not disappear. Tornado Cash's developers faced criminal prosecutions in multiple jurisdictions, with one co-founder convicted of operating an unlicensed money transfer business. Another case involving Samourai Wallet sent a similar signal. In November 2025, its founder pleaded guilty in the United States and was sentenced to several years in prison for conspiring to operate an unlicensed money transfer company. Prosecutors alleged that over $2 billion in Bitcoin was transferred through the service. For compliance teams, the line between infrastructure and money transfer tools is difficult to draw. Some anti-money laundering service providers and policy agencies now classify privacy coins, mixers, and some high-risk decentralized finance (DeFi) tools in the same high-risk category. Under pressure from the FATF and national regulators, many companies tend to over-compliance, such as freezing deposits related to privacy tools, refusing listings, and restricting payment uses. For users, this presents secondary risks. Even if a particular cryptocurrency or protocol is not sanctioned, its surrounding ecosystem may still deem it too risky to engage with. Analysts are divided on what this surge signifies: Some see it as a protest trade against increasing on-chain surveillance, data-sharing rules, and sanctions screening. Others believe it's a speculative surge in the late stages of a shrinking segment, driven more by leverage and narrative than by long-term demand. Key policy milestones: EU anti-money laundering regulations restrict or effectively prohibit the issuance of privacy coins on authorized platforms, expected to be fully implemented around 2027. The FATF will continue to publish implementation review reports; the latest report states that compliance with virtual asset standards and the "travel rule" remains incomplete in most jurisdictions. On the technology front, upgrades like Zcash's NU6.1 fund transfer feature and experiments with optional privacy layers on major networks may test whether stronger privacy protections can coexist with regulators' requirements for traceability. Currently, privacy coins are caught between the long-standing debate on financial privacy and increasingly stringent global anti-money laundering and sanctions mechanisms. Understanding legal, liquidity, and enforcement risks is crucial to understanding how this field operates.
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