Institutions Are Buying Into The Privacy Coin Hype – But Will It Last?

While the majority of the crypto market continues to face declines, privacy coins have demonstrated a rather surprising surge.

Grayscale Research’s October 2025 report notes: “Although crypto valuations were broadly lower in October, a major exception was the Zcash network’s ZEC token, which gained 248% during the month and reached a market cap of about $6.5 billion.”

Litecoin (LTC), Monero (XMR), and Dash (DASH) have also shown increased adoption, as demonstrated by CoinMarketCap’s list of top-performing privacy tokens.

A Closer Look at Privacy Coins

Although it may come as a surprise that privacy coins are gaining popularity, industry experts believe that such a phenomenon was bound to happen.

Howard Wu, CEO of Provable and Creator of Aleo—an ecosystem of experts leveraging privacy solutions for blockchain—told Cryptonews that privacy is becoming a heightened priority. Wu noted that this is due to the market’s focus on financial infrastructure for real-world use cases.

“The needs of enterprises and institutions differ from that of early crypto adopters,” Wu said.

With the enterprise blockchain sector expected to reach $287 billion by 2032, institutions have turned to privacy coins to achieve solutions that offer some form of confidentiality. For example, Grayscale’s report explains that Zcash is a decentralized digital currency like Bitcoin (BTC), but incorporates optional privacy features through “shielded” accounts and transactions.

Shielded transactions on Zcash hide the sender, receiver, and transaction amount using zero-knowledge proofs. The Zcash network uses cryptography to let users choose whether a transaction is public or shielded.

According to Grayscale’s findings, demand for these features has grown. “The share of ZEC supply held in shielded addresses has increased to about 30% from an average of about 10% in 2024,” the report states.

How Institutions Leverage Privacy Coins

While traders are known for using Zcash, institutions are starting to leverage privacy coins for a number of use cases.

Carter Feldman, Founder and CEO of Psy Protocol—a Layer-1 blockchain focused on privacy—told Cryptonews that institutional use of Zcash primarily revolves around two areas.

“First, for selective privacy in transactions, where institutions can leverage Zcash’s shielded pools to conduct confidential transfers, while retaining the ability to disclose details for audits or compliance via view keys.”

Additionally, Feldman pointed out that investment vehicles like the Grayscale Zcash Trust—which allows investors indirect exposure to ZEC—have seen steady growth in assets under management (AUM).

“Such products indicate that institutions are actively diversifying their portfolios to include privacy-enhancing assets,” he said.

The Importance of Privacy

Charlie Lee, creator of Litecoin, elaborated that privacy is key for many businesses transacting with LTC. “I don’t consider LTC to be a privacy coin since we are not focused specifically on privacy. However, having privacy features available for users is a key feature of payments, which is what LTC was designed for,” he stated.

Will Wendt, head of ecosystem at Oasis Protocol, further told Cryptonews that enterprises showing interest in privacy coins are not only focused on the tokens themselves, but rather on the outcome.

“Projects building privacy-preserving technology that can work across chains and integrate with existing systems are what’s actually capturing institutional/enterprise attention, not necessarily holding privacy-focused tokens,” Wendt said.

Institutions have also begun experimenting more with ZKP architecture to explore private settlement layers and confidential reporting mechanisms.

Gracy Chen, CEO of crypto exchange Bitget, told Cryptonews that the same privacy principles are being integrated into newer Web3 networks that focus on compliance-friendly privacy, where data can be selectively disclosed when needed.

“It’s not about hiding transactions anymore, but about protecting sensitive business data in a way that’s still auditable and regulatorily sound,” Chen said.

Privacy Versus Anonymity

While the notion of privacy is attractive to institutions and businesses alike, it’s essential to distinguish between privacy and anonymity.

Tom D’Eletto, Head of Product at Arculus—a cold storage wallet provider—told Cryptonews that the crypto sector often views “privacy” and “anonymity” as the same thing—but there are differences.

“Tokens like ZCash, Monero, sentz (formerly Mobilecoin) are anonymous,” D’Eletto said. “Solutions like Aleo, Midnight, private transactions in Solana (and other similar options) are ‘private,’ meaning that the whole world isn’t able to see all of the transactions (to some degree).”

This is important, as D’Eletto noted that institutions and businesses using privacy coins still need to be regulatory compliant. “A regulator must still be able to access certain data when needed,” he said.

Regulatory and Technical Challenges

With this in mind, Lee noted that a number of regulatory challenges will create barriers for institutions and enterprises using privacy coins.

“For example, there have been a number of crackdowns by exchanges listing privacy coins in places like Korea. When Litecoin launched its privacy layer, LTC was delisted from exchanges in Korea. This made it difficult for users to acquire LTC and use the token.”

The United States has also expressed concern recently about privacy coins. If finalized, FinCEN’s proposed rule would require exchanges and institutions to keep records and report any transactions over $500 involving an unhosted wallet if the transaction is private or encrypted. The U.S. has also sanctioned specific privacy tools like Tornado Cash, linking them to money laundering and terrorism.

Eric Jardine, head of research at blockchain analysis firm Chainalysis, told Cryptonews that one of the biggest challenges for institutions exploring privacy tokens is finding the right balance between protecting user privacy and allowing for lawful oversight.

“Privacy features may make transactions more complicated to trace, but institutions still need to be confident they can meet compliance requirements and investigate suspicious activity when it occurs. In the end, building trust will come down to showing that privacy and accountability can work hand in hand,” Jardine said.

Technical challenges are also associated with privacy coins. Lee explained that a transparent, fixed supply of tokens—as seen with Bitcoin—becomes complicated with privacy coins.

“You need to use advanced cryptography to prove that no additional coins have been created out of thin air,” he said. “There could also be quantum attacks against privacy coins that may create hidden inflation.”

Lee also added that transactions often take longer to process when using privacy coins due to potential hidden inflation.

On-chain Privacy Will Grow, But What About Privacy Coins?

Challenges aside, it’s clear that demand for on-chain privacy is growing and will continue to increase.

“We’re seeing this not just at the base layer, but also with the emergence of next-generation blockchains designed for privacy-preserving smart contracts, like Psy, Miden, and Aztec,” Feldman said.

While this may be, privacy coins like Zcash that are gaining traction during the current bear market may be a trend.

“People are always chasing the next big thing, and privacy becomes a hot topic when more people hear about privacy coins,” Lee commented.

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