Key Takeaways
Zcash (ZEC) fell 7% on Tuesday, sparking the liquidation of $14.55 million in leveraged positions.Monero gained nearly 3%, extending its 90-day rally to over 75% despite broader market weakness.SMC Researchers warn that EU privacy coin restrictions taking effect July 1, 2027, could hurt liquidity.
Privacy Coins Drop Amid Crypto Market Downturn
Privacy coins tumbled Tuesday amid a broader cryptocurrency market downturn that saw bitcoin slide toward $76,000. The sell-off came as a report from SMC Researchers highlighted the sector’s growing adoption, persistent liquidity challenges and mounting regulatory pressure.
Zcash (ZEC) led the decline, plunging from more than $1,250 to $1,125, briefly registering a 24-hour loss of more than 10%. A subsequent rebound to $1,170 trimmed its daily loss to 7%. ZEC’s decline helped push liquidations on the privacy coin to $14.55 million, with wiped-out long positions accounting for more than 85% of the total, or $12.5 million.
Near Protocol (NEAR) shed more than 30 cents to hit a session low of $3.75 before recovering to $3.85, leaving it down nearly 7% for the day. Dash (DASH) fell from more than $48.25 to $45.81, while Railgun (RAIL) dropped to an intraday low of $2.10 from $2.29. Several microcap privacy coins also recorded 24-hour losses ranging from 2% to 5%.
However, a handful of privacy coins bucked the trend. Monero (XMR) climbed from $608 to around $625, gaining nearly 3%. The increase extended its 90-day gains to more than 75%, making it one of the top-performing digital assets over that period. Zano (ZANO) surged nearly 8%, rising from $3.09 to $3.32 to lead the privacy coin sector in daily gains.
Beldex (BDX) and Horizen (ZEN) also posted modest gains of 1.6% and 1.7%, respectively.
Darknet Adoption Fuels Demand Despite Liquidity Challenges
The mixed performance comes as privacy-focused cryptocurrencies continue to attract interest despite regulatory restrictions and limited mainstream payment adoption. According to a report by SMC Researchers, the shutdowns of major darknet marketplaces, including Silk Road in 2013, Alphabay in 2017, Hydra in 2022 and Incognito Market in 2024, helped accelerate the adoption of privacy coins, particularly Monero, among operators seeking to evade blockchain tracing.
The shift gained momentum in 2020 when White House Market, then one of the largest darknet marketplaces, began accepting Monero exclusively. However, subsequent exchange delistings disrupted the cryptocurrency’s liquidity and accessibility.
SMC Researchers noted that OKX’s decision to delist Monero in late 2023, followed by Binance in early 2024, contributed to a sharp contraction in trading accessibility. According to the report, daily transactions fell by nearly half, temporarily prompting some Western darknet marketplaces to revert to bitcoin.
Despite these setbacks, darknet operators began shifting back toward privacy coins by mid-2025, contributing to renewed demand and higher valuations across the sector.
The report also highlighted how privacy coins complicate anti-money-laundering investigations by obscuring transaction histories. Illicit actors can potentially convert bitcoin or stablecoins into privacy-focused assets before converting them back, making it more difficult for investigators to trace the movement of funds.
However, exchanges remain potential points of detection because conversions into and out of privacy coins can leave identifiable records. This helps explain why regulators have increasingly targeted trading platforms and other intermediaries rather than the underlying blockchain protocols.
The report cited Chainalysis research indicating that illicit cryptocurrency activity accounts for a relatively small share of overall transaction volume, with much of the identified activity involving transparent networks and assets such as bitcoin, ether and stablecoins.
Despite growing interest in privacy-preserving transactions, the sector faces mounting regulatory challenges. The European Union’s Anti-Money Laundering Regulation will prohibit regulated service providers from handling anonymity-enhancing cryptocurrencies beginning July 1, 2027, potentially further restricting liquidity and access to major trading venues.
SMC Researchers argued that privacy coins address fundamental shortcomings of transparent blockchain networks by protecting financial confidentiality, improving fungibility and enabling businesses to conduct transactions without exposing sensitive information.
However, the report cautioned that everyday retail use remains limited compared with speculative trading activity. Much of the sector’s recent appreciation has been driven by investor narratives and improved market accessibility rather than corresponding growth in payment volumes.
The researchers identified a growing divide between ZEC, which offers optional privacy and institutional accessibility, and XMR, which maintains mandatory privacy protections.
While privacy-enhancing features are expected to become increasingly integrated into broader blockchain infrastructure, the report suggested that dedicated anonymity-focused cryptocurrencies could remain a specialized market segment.
Tuesday’s divergent price movements underscored that distinction. While Zcash and several smaller privacy coins suffered sharp losses, Monero’s resilience suggested that demand for privacy-focused assets remains uneven, even as the broader cryptocurrency market struggles to regain momentum.
