Privacy tokens — cryptocurrencies that allow users to remain anonymous by hiding the flow of money on their networks — have been on the rise over the past 30 days, with some crypto analysts pointing to geopolitical tensions as a catalyst.
Mati Greenspan, founder of foreign exchange and cryptocurrency analytics firm Quantum Economics, said the rise could be due to speculation about the introduction of financial sanctions.Privacy tokens make it difficult to know who sent what to whom, making them a useful shield for users who don't want anyone to track or see their financial activity.
“One can speculate that a lot of the sanctions being imposed on Russian nationals is driving them into crypto,” Greenspan said in an interview with CoinDesk. “If Bitcoin itself isn't anonymous enough to meet their particular needs, they may be buying more privacy-focused coins.”
Monero’s XMR, the largest privacy token by market cap, is up 35% over the past 30 days, according to Messari data. Meanwhile, Bitcoin (BTC), the world’s largest cryptocurrency by market cap, is up 6% over the past 30 days. According to Monero’s website, the company prides itself on offering “a secure, private and untraceable cryptocurrency that keeps your money private.” Binance, the world’s largest cryptocurrency exchange by trading volume, published a blog post last week about the top 10 privacy tokens on its platform, with XMR coming in at number one.
As CoinDesk reported on Tuesday, Lux Thiagarajah, head of trading at BCB Group, a banking service to cryptocurrency companies, said XMR’s appeal has only increased since Russia’s invasion of Ukraine.
“People around the world are beginning to realize that money deposited with government-supervised financial institutions is not actually their money,” Arca Chief Investment Officer Jeff Dorman said in an email to CoinDesk. “At best, it's a debt someone else owes you that you may or may not ever recover.”
“This is a very bullish sign for stablecoins, bitcoin and privacy tokens that can be held as bearer assets,” Dauman added.
The European Union recently voted in favor of a controversial measure to ban anonymous cryptocurrency transactions, a move criticized by many in the industry for infringing on privacy and stifling innovation.
“There are two perspectives that are helping shape the privacy coin story,” said Into the Block analyst Juan Pellicer. “First, the macro situation of regulatory pressure on cryptocurrencies held by Russian companies seeking to circumvent US and EU financial sanctions, and by extension, recently approved EU legislation aimed at improving the traceability of coins withdrawn from centralized exchanges.”
Notably, there is little blockchain data so far to suggest that the Russia-Ukraine war or related sanctions have led to a significant overall increase in cryptocurrency use, CoinDesk's Anna Baidakova reported this week.
Blockchain analytics firm Crystal Blockchain monitored hot wallets at major cryptocurrency exchanges that trade Russian rubles and Ukrainian hryvnias and found no major fluctuations related to the war or migration.
MASK, the token for Mask Network, a platform for users to send encrypted messages, cryptocurrencies and dapps, is trading up 14%. Decred (DCR), a privacy token with a market cap of $759 million, is also on the rise, up 9% in the past 30 days.
Another reason why some privacy token protocols are soaring in price is that investors may be moving funds from spaces like decentralized finance (DeFi) into privacy coins, according to Charles Storey, head of growth at crypto index platform Phuture.
According to data from Dune Analytics, the number of daily active users (DAUs) across major decentralized finance (DeFi) applications is declining across the board, which has investors looking for the next place to find revenue and growth, Storey said.
“With the right proposition, privacy coins could become the next high-growth sector,” he said.
“The increased capital flowing into this sector suggests we can expect to see a new upswing in proposals that seek to change the prehistoric legacy of these protocols,” Storey said.
The exception is zcash (ZEC), the second largest privacy coin by market cap, which has fallen 5% over the past 30 days.
“The (Zcash) protocol has been successful, but the token model doesn't reflect that for holders,” Storey said. “We've seen change in traditional crypto applications like MakerDAO with new token proposals, and we expect to see something similar happen in the privacy coin space.”
Privacy tokens differ both technologically and conceptually: some blockchains without smart contracts aim to act as store-of-value assets (similar to Bitcoin), while others focus on smart contracts and, at some point, on decentralized finance but are more private.
Crypto data and analytics firm Messari has listed 22 privacy assets.
“Some companies have different ideas about privacy, such as whether to have traceable accounts and amounts by default, and some use different encryption methods, such as using cutting-edge algorithms or more battle-tested techniques,” said IntoTheBlock's Pellicer.
