With Zcash (ZEC 2.00%) priced at less than $400, and Bitcoin‘s (BTC 2.14%) price near $93,000, it’s no wonder some of the Zcash evangelists are trying to get investors to think that buying it right now will one day be just as outrageously profitable as it would have been to buy Bitcoin at the same moment in its price history. Normally, this kind of hand-waving and wholly aspirational marketing of an investment is something to dismiss immediately, because no good is likely to come from believing in it and allocating your money accordingly.

But there’s at least one reason it might be different this time. Let’s evaluate this idea.

Image source: Getty Images.

It’s a mistake to focus on price

First off, let’s get one thing crystal clear.

Communicating the facts that Zcash is today less than $400, and that Bitcoin was in the distant past at the same price, is meant to tempt people into taking a deadly mental shortcut, which presents itself like so: If the coin only costs a few hundred bucks right now, and the other coin is priced at tens of thousands of bucks, it feels like the less expensive asset has more room to run, and if it has more room to run, it’s bound to be the better investment of the pair. These ideas are simply not true.

The shortcut is called unit bias, and it’s ubiquitous, especially among investors in crypto. A coin can cost $400 and have a market cap of literally $1, or it can cost $0.00000001 and have a market cap in the tens of billions or more.

At a price of $375 as of Jan. 19, and 17 million coins outstanding today, Zcash has a market cap of $6.2 billion, give or take. It’s not tiny, even though its market cap is far smaller than Bitcoin’s cap of almost $1.9 trillion. But it’s technically possible for it to catch up, so we’ll now turn to the question of whether it’s actually probable or not.

Bitcoin

Today’s Change

(-2.14%) $-1994.13

Current Price

$91101.00

Will buying Zcash right now prove to be a genius move?

Bitcoin’s supply policy features a hard cap at 21 million coins and an issuance schedule that halves the reward for mining new coins about every four years. This dynamic ensures that the bitcoins of the future are highly likely to be worth more than the ones today, as there will be fewer and fewer being produced, and no opportunity to ever change that fact.

Zcash does share an important design choice with Bitcoin, which is to say its scarcity. It’s also capped at a maximum circulating supply of 21 million coins. But for buying it now to be as great of an idea as buying Bitcoin at $400 was, quite a few things need to happen during the coming years.

Today’s Change

(-2.00%) $-7.46

Current Price

$364.99

Zcash is a privacy coin which confers the ability to hold, send, and receive money without any outside observer being able to discover any of the participants involved. The way it does that is by zk-SNARK, which is a type of zero-knowledge (ZK) cryptographic proof that lets you prove something is true without revealing the underlying information. Therefore, the first and second things that need to happen for Zcash to one day grow to reach a market cap in the trillions like Bitcoin are as follows: Its privacy technology needs to remain functional and competitive such that people seeking to hide their money will be interested in using its chain, and investors will need to consistently want privacy as a feature.

Another critical thing that will need to happen is that Zcash will need to overcome its history of being opposed by financial regulators, which it has in common with other privacy coins. In short, regulators don’t like stuff that makes it harder to figure out where money is flowing to and from, so they have tended to ban or heavily restrict Zcash and other assets, and there’s no indication that they’re about to change their minds. Bitcoin also experienced a fair degree of regulatory headwinds, and in many ways it still does, so it’s important to note that such issues aren’t necessarily deal-breakers in the long view of things.

So will buying Zcash at $400 eventually feel like buying Bitcoin at $400 with the benefit of hindsight, 10 or more years from now? Probably not. Bitcoin’s path depended on becoming the default asset in a new class of assets (cryptocurrency), and Zcash is still fighting to be allowed, understood, and used, and its competitive landscape is already filling up with other players. It could still become a trillion-dollar asset one day, but it probably won’t make quite as many millionaires as Bitcoin did.

Nonetheless, I own Zcash because I believe that it will still reward patient investors, much as Bitcoin did. Financial privacy is something a lot of us want and need, and Zcash is a strong solution for providing at least a part of it.