Privacy-focused cryptocurrencies could extend their market gains into 2026, according to analysts and researchers, but the very forces driving demand could also trigger an inevitable regulatory reckoning.
In a year-end report, Kucoin said privacy coins led the crypto market’s top performers last year with ZEC, XMR and DASH, including bitcoin, ether and XRP. ZCash’s ZEC rose 861%, Monero’s XMR rose 123% and Dash’s DASH rose 12%.
Privacy coins fared better last year as growing concerns over blockchain surveillance and financial traceability pushed users back toward assets designed to act as digital cash. Reintroduction of privacy features, particularly on networks like Zcash and Monero, coincided with wallet upgrades that made private transactions easier and more accessible, helping to expand anonymity sets at a time when broader crypto markets were struggling under macro and ETF-driven pressure.
But while experts believe they will continue to outperform this year, Kucoin said, many of them, “analysts warn of regulatory risks and macro pressures could affect future gains.” The thesis is that as regulation tightens and blockchain surveillance expands, financial privacy shifts from an ideological preference to a functional requirement.
Markets reward privacy tokens
“Privacy coins are a growing narrative because financial privacy is becoming a structural requirement as blockchain adoption matures and regulations tighten,” Jason Fernandes, market analyst and co-founder of Adlunam told CoinDesk. “Markets are rewarding protocols that embed privacy at the base layer, unlike traditional transparency-first models.”
That view is consistent with Grayscale’s Crypto Sectors Quarterly: A Preference for Privacy report, which found that privacy-oriented assets outperformed all other crypto sectors in Q4 2025 despite largely negative market returns. Grayscale argued that the demand for confidentiality is increasingly influencing capital allocation, particularly as regulatory oversight intensifies across major jurisdictions.
The forward-looking case has also gained traction among venture investors. In a post on X, a16z Crypto described privacy as a core pillar of the next phase of the crypto infrastructure and argued that as blockchains scale into regulated environments, demand for privacy-preserving systems is likely to intensify rather than fade.
Grayscale’s long-term outlook suggests the trend may continue. In its 2026 Digital Asset Outlook, the firm positioned privacy-enhancing technologies as part of the infrastructure likely to benefit from deeper institutional and regulatory engagement with crypto, a recognition that privacy may become more relevant, not less, as the asset class matures.
Still, analysts warn that rising interest could invite sharper scrutiny. Fernandes warned that AML and KYC restrictions, particularly around exits, remain the sector’s biggest vulnerability.
A core pillar of the next phase in crypto
The legislative background is changing. In Europe, the rollout of the Anti-Money Laundering Authority (AMLA) and the gradual implementation of the Markets in Crypto-Assets (MiCA) framework have tightened controls around asset traceability, exchange banking relationships and transaction monitoring. While privacy coins are not explicitly prohibited under MiCA, compliance obligations on custodians, payment processors and banks have raised questions about how long exchanges can continue to support privacy-focused assets without facing indirect pressure, especially when fiat exit ramps are involved.
Still, Fernandes warned that AML and KYC restrictions, particularly around exits, remain the sector’s biggest vulnerability.
‘The greater the interest, the greater the control’
“You can only fly under the radar for so long,” Fernandes said. “The more interest, the more scrutiny. Sooner or later, regulators will reach out and say, ‘You can’t bank with that exchange if you list zcash.’ Exchanges have limited options for payment processors, and banks can wield enormous influence.”
Fernandes also said privacy assets may benefit from regulation in the short term but face an inevitable showdown. “As the EU imposes more and more draconian regulations, privacy coins only become more interesting to people. But it also sets the stage for their inevitable confrontation with regulators.”
Despite these risks, Fernandes sees demand rising.
“Increasing retail interest is inevitable as regulations are constantly expanding,” he said. “The real question is how privacy coins will fare when regulators turn their full attention to them.”
Industrial figures have echoed these concerns from a different angle. Arthur Hayes argued that rising geopolitical tensions and expanded economic surveillance make privacy tools increasingly relevant, while warning that greater visibility and use could attract intensified regulatory attention, amplifying the sector’s long-standing tension between utility and compliance.
‘The winners will not be the highest privacy coins’
Mati Greenspan, founder of Quantum Economics, framed the privacy resurgence as a reaction to blockchain transparency itself. “Privacy coins are doing better because transparency was overused as a control layer,” Greenspan said. “When everything is traceable, privacy shifts from philosophy to utility.”
Greenspan told CoinDesk that expanding oversight of public blockchains is likely to keep capital flowing into privacy. “There’s a narrative-of-the-day component to the trade, but it’s not just hype. The narrative sticks because it’s rooted in a real structural shift.”
Looking ahead, both analysts agree that not all privacy tokens will benefit equally. “In 2026, the winners will not be the loudest privacy coins,” Greenspan said, “but those that balance strong privacy with ease of use, liquidity and regulatory resilience. When transparency becomes mandatory, privacy will be priced again.”
