Institutions are buying into the privacy coin hype – but will it last?

While the majority of the crypto market continues to face decline, privacy coins have seen a rather surprising rise.

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

Litecoin (LTC), Monero (XMR), and Dash (DASH) have also seen 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 tokens are gaining popularity, industry experts believe that such a phenomenon was inevitable.

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

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

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

Protected transactions on Zcash hide the sender, recipient, and transaction amount using zero-knowledge proofs. The Zcash network uses cryptography to allow users to choose whether a transaction is public or protected.

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

How Institutions Leverage Privacy Coins

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

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

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

Additionally, Feldman highlighted that investment vehicles such as the Grayscale Zcash Trust, which allows investors indirect exposure to ZEC, have seen consistent 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, explained that privacy is essential for many companies transacting with LTC. “I don’t view LTC as a privacy coin, as we don’t specifically focus on privacy. However, having privacy features for users is a key feature of payments, and that’s what LTC was designed for,” he said.

Will Wendt, Head of Ecosystem at Oasis Protocol, further told Cryptonews that companies interested in privacy tokens are not just focused on the tokens themselves, but rather the bottom line.

“Projects creating privacy-preserving technology that can work across chains and integrate with existing systems are what are really getting the attention of institutions/companies, without necessarily holding privacy-focused tokens,” Wendt said.

Institutions have also begun to further experiment with the 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 built into the new Web3 networks that focus on compliance-friendly privacy, where data can be selectively disclosed when needed.

“It’s no longer about hiding transactions, but about protecting sensitive business data in a way that remains auditable and regulatory sound,” Chen said.

Privacy versus anonymity

If the notion of privacy appeals to both institutions and businesses, it is 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 industry often thinks of “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 the whole world is not able to see all transactions (to some extent).”

This is important because D’Eletto emphasized that institutions and companies using privacy coins must still comply with regulations. “A regulator should always 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 obstacles for institutions and companies 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 recently expressed concerns about privacy tokens. If finalized, FinCEN’s proposed rule would require exchanges and institutions to maintain records and report any transaction over $500 involving an unhosted wallet if the transaction is private or encrypted. The United States has also sanctioned some privacy tools such as Tornado Cash, linking them to money laundering and terrorism.

Eric Jardine, head of research at blockchain analytics 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 legal surveillance.

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

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

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

Lee also added that transaction processing often takes longer when using privacy coins due to potential hidden inflation.

On-chain privacy will grow, but what about privacy coins?

Challenges aside, it is clear that the demand for on-chain privacy is increasing and will continue to increase.

“We’re seeing this not only 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 the case, crypto coins like Zcash, which are gaining traction during the current bear market, could be a trend.

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

Institutions are buying into the privacy coin hype – but will it last? appeared first on Cryptonews.

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