Naval Ravikant received millions of impressions this week with his controversial claim that Zcash (ZEC) is insurance against Bitcoin (BTC). Few people agreed with him.
In various posts on social media, the crypto community pointed out the difference in insurance and price performance, the positive correlation between ZEC and BTC, ZEC’s underperformance, Naval’s financial conflict of interest promoting early allocation of ZEC, and Zcash’s pro-VC and anti-cypherpunk compliance culture.
Insurance and rising prices
Naval’s citation for this claim was a ZEC price list embedded in his post. He chose a time period of less than two months to stage an only increase from $49 to $68.
This quote fails on many levels.
First, just because the price of something goes up doesn’t mean it’s insurance. The prices of thousands of publicly traded assets (e.g. options) that are not guaranteed are increasing by thousands of percentage points every day.
Insurance provides policyholders with a contractually guaranteed payout in the event of a prespecified loss event, as opposed to a random price spike.
Unlike insurance, ZEC has a positive correlation with BTC.
Rather than trading inversely to the price of BTC like insurance products, the price of ZEC is actually positively correlated with the price of BTC.
When BTC rises, ZEC also tends to rise. To make matters worse, its positive correlation has weakened over time as it has trended downward against BTC over the long-term time frame.
Specifically, a look back at ZEC’s history reveals that its price is 95% below its all-time high. 80% below 2018 high.
In contrast, BTC is within 5% of its all-time high, making it one of the best-performing assets since its inception.
Despite trading for $9,000 on Poloniex when it debuted in 2016, and thousands of dollars within days, ZEC is now worth less than $150.
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Worse performance than Bitcoin since launch
Unlike ZEC, BTC had no pre-sale and was free or nearly free for the first two years of operation through faucets, donations, or home mining. Many of the early investors paid a few pennies per BTC.
The first USD-denominated trade of BTC was made via PayPal at $0.001. The price of BTC traded in pennies on MtGox many times, and even dropped below $2 on Bitstamp until 2011.
Investors who invested in less than $2 BTC have earned over 6,000,000%.
In contrast, early investors in ZEC paid around $1-2 per coin. Electric Coin Company raised approximately $3 million through private investment rounds during the Seed and Venture rounds and enjoyed a portion of Zcash Company Founders Rewards of approximately 2.1 million coins.
Of course, some investors paid less or more per coin depending on their seniority and contribution.
Even calculating returns starting at $0.50 per deal, investors who founded ZEC today have gained less than 30,000% since its inception. The returns of over 6,000,000% are open to any investor worldwide who has two years to acquire their BTC. For less than $2 each.
Naval was an investor in that founding round. In 2015, he and other investors, including Barry Silbert and Roger Ver, invested $715,000 in Zerocoin Electric Coin Company, later renamed Electric Coin Company, which became the entity behind Zoko Wilcox-O’Hearn’s development of Zcash.
Mr. Naval also serves on the board of the Zcash Foundation.
So not only should Naval know better (i.e. his ZEC investment does not exceed someone else’s initial investment in BTC), but his financial conflict of interest is also revealed.
Zcash Anti-Cypherpunk Compliance and VC Capture
Cypherpunks created BTC during the 2008-2009 financial crisis as a stateless financial network and a statement against government bailouts and too-big-to-fail banking policies.
In contrast, venture capitalists provided funding to ZEC and ensured that it complied with government regulations over the years. The venture capitalist agreed to a payment structure that would give founder Zuko $250,000 in monthly profits.
Unlike other private cryptocurrencies like Monero, Zcash does not set up private transactions by default. VC ensured that the majority of its network remained open to state surveillance and chain analysis.
Electric Coin Company was literally bragging about how it complied with the recommendations of the U.S. Treasury Department’s Financial Action Task Force.
The company said in a blog post that it prides itself on “enabling VASPs to conduct sanctions checks and restrict withdrawals to whitelisted addresses.”
It listed data available to government monitors, including “customer identity, amount of Zcash deposited, destination address, source address, and transaction ID.”