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Welcome to Money for the rest of us, this is a personal finance show on money how it works, how to invest it, and how to live without worrying about it. I'm your host David Stein. Today is episode 543. It's titled Hoarding FOMO and Zcash A Private Bitcoin Last month I received a text from a friend of mine who we have known each other for over a decade and he is a smart investor, is very knowledgeable on cryptocurrency and his text said, you ever look into zcash? It's effectively private Bitcoin. He said that he's seeing non hype oriented crypto people that he respects talking about it more these days and suggested that this privacy aspect of zcash might make for an interesting show topic. He also pointed out that Zcash was selling for $50 versus 100,000 plus for Bitcoin. Now I had looked into Zcash. In fact I used to own it. I purchased four or five Zcash coins, they go by Zec in the summer of 2018, paid around $150 or so per coin. This was when Circle, the issuer of the Stablecoin usdc, sponsored our podcast. At the time they were a relatively new company. They hadn't launched a Stablecoin yet. Their main offering was a crypto wallet that you could custody Bitcoin and other cryptocurrency. And I already owned Bitcoin and Ethereum by then and so I bought zcash for that crypto wallet just to try out the wallet, make sure it worked well. After Circle launched its Stablecoin, it closed its crypto wallet and transferred the assets to Voyager. Voyager, you may recall, filed for bankruptcy in 2022 and at that point my little Zcash holding was locked up. I was able to access a portion of the fund in 2023 and by then Zcash was selling for $30 a coin. Now, I didn't think anything of it because I own a dozen or so crypto coins and tokens, small positions, some of which have done well and others have done terrible. These are speculations. I only put enough in that I'm willing to lose it all. And for some wrapped Luna, the Mirror Protocol, I've effectively lost it all. Others lost like Solana and Aave have done better. The total market capitalization of the crypto universe is about $3.8 trillion. That includes Bitcoin, Ethereum and 18,000 other coins and tokens. For comparison, Nvidia's market cap is greater one company, $4.7 trillion. Microsoft and Apple are each larger at a $4 trillion market capitalization than the entire crypto sphere, the US stock market. Let's take the Wilshire 5000, an index that essentially comprises all the US stocks, publicly traded stocks. Only around 3,400 stocks in that index. Now, hitting on the theme where there are just fewer companies publicly traded, way more private companies. But the Market capitalization is $68 trillion, compared to $3.8 trillion for the crypto universe. Now, market capitalization is the number of shares or the number of coins outstanding, times the price. Gold, 216,000 tons in circulation. Market capitalization using $4,000 an ounce of $28 trillion. Now, of that $3.8 trillion capitalization for the crypto universe, 58% is Bitcoin. And the second largest is ether, at around 13%, followed by the very stable coins around 8. So there are thousands and thousands, close to 18,000 coins that make up 20% of the crypto universe when we buy Bitcoin or Zcash. And I'll explain more about what Zcash does in this episode. When we own gold. This. This is hoarding. Hoarding means to hide something away for future use. We can hoard food. We can hoard ammunition. Some people hoard land. Land. And it's not farmed. They just own it. Hoarding is good if not taken to an extreme. It provides a layer of protection against the unknown, including rising prices due to inflation. And the logic of owning gold or Bitcoin or zcash is that the supply of those assets grows slower than the supply of fiat currency. The US Money supply includes currency, checking and savings accounts. Retail money market mutual funds has grown around 6% per year. Gold around 3% a year. Bitcoin and Zcash, they're capped at 21 million coins. And the algorithm produces the coins. But the pace of increase is slowing because every so often, there's a halving event. The reward that is received for miners that are securing the network, validating transactions. That reward is less and less over time as Bitcoin and Zcash get closer to that 21 million coin cap. And so when we hoard things, we want to hoard things that are scarce. But hoarding is different than investing. Investing differs from speculation. Speculation means there's a disagreement on whether the price of an asset will increase or not. Many cases are difficult to value because there isn't any cash flow. Investing is when we are confident there will be a positive return. There's A basis for it. And usually that's because there's some cash flow. For the stock market, it's dividends or the potential for dividends. Those dividends are growing because the earnings of the underlying companies are growing. They're making things. They're getting more efficient at making things or providing services. They're innovating over time. They're contributing to the growing economy because economic growth, GDP is a measure of the value, the monetary value of what is produced. And the stock market is made of, made up of companies that are producing things, growing their cash flow, growing their earnings, growing the economic pie. Gold, Bitcoin and zcash are not growing the economic pie. They're just there to be hoarded, to provide a layer of protection. Now, Bitcoin and zcash have other uses. They're networks, secure networks that you can transfer Bitcoin or zcash to someone else. And that's the beauty of Bitcoin and zcash, to transfer something of value because people value it, this digital currency somewhere else in the world and as a store of wealth, digital gold, if people continue to trust it and trust the network. But it's very different than owning stocks. Now, my friend and I checked with my friend about sharing our conversation, and he was fine with it as long as he remains anonymous, which he will. Most of his net worth is in gold and crypto and silver. And we talked about that. We had a call last week and we've talked about it before we exchanged investing ideas. His risk tolerance is tremendously higher than mine, but he admits he doesn't always take profits when he should. He described it as falling in love with your assets because you can see the potential growth. And that's where sort of the fear of missing out can come in, that if an investor feels like maybe they're falling behind, that it's going to be cryptocurrency that will allow them to catch up where they believe they should be financially. And that's a real, a very real feeling. I saw it when I attended a trading school for learning to trade securities, and that was their approach to get people to sign up for their trading course. You're falling behind. You're not going to get to where you want to be financially. Investing in the stock market with its 7 to 10% return will teach you to trade. So you can do better than that to dramatically magnify your wealth. And it's not true. Very few investors can compound wealth greater than 20%. But if you own Bitcoin, you have and There are many bitcoin millionaires out there, but it was just one of 18,000 tokens. Most have not done that, which is why I bought zcash last Saturday. It was the fear of missing out. Because when my friend texted me in September, Zcash was selling for around $50. My friend invested $25,000 in it, roughly 20% of his net worth. When we had a call last week, Zcash was selling for $250 per coin and his stake was worth $125,000. And then we could envision it going higher, but he has some major expenses that he has to pay in the next year. And while we were on the call, he actually sold half his stake. But I felt bad because I had thought about buying zcash in September after his text. And then we were traveling and I didn't. I got distracted. But I got to thinking about it after our call. And then I went and bought 10 Zecs, about $2,700 worth, this past Saturday. And then my friend texted me a screenshot, probably to remind me that I had encouraged him to take some profits due to these major expenses. And Zcash was at $350 per coin. Something was driving it. Now, when I bought zcash Saturday, I still hadn't done the research. I learned this from an investment advisor money manager many years ago. They were a small cap manager. I think they maybe held a hundred stocks, but they would take small positions of 1% or or less on securities that they were interested in that passed some initial screenings but they hadn't done major analysis on. And that's why I was doing zcash. I like I said, I own a dozen or so of these tokens. I'm willing to lose all the money. But I bought zcash out of fomo. And then this week I started looking at it again to see what makes zcash unique. Before we continue, let me pause and share some words from this week's sponsors.
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It was founded in 2016. It was built on the original Bitcoin protocol, but they added an additional layer for privacy. It's commonly assumed that Bitcoin is private, but it's not. It's secure. But anytime someone sends bitcoin, it's a public ledger. If someone knows that public BTC address, they can look up that address and see how many Bitcoin are held at that address and all the history of that address. That's because it's a public ledger, and that's why we have miners that are securing the network, validating transactions. But every transaction that's ever been made over the Bitcoin network, it's right there in that ledger. Which is why if you're involved in Bitcoin and you receive bitcoin, it's important to refresh your Bitcoin address. Everything. So not every not every bitcoin transaction is tied to that same public address. When you send Bitcoin, that gets changed. That public address gets changed automatically by whatever wallet you're using. So zcash comes along and they believe that financial privacy is a fundamental human right. The ability to send money anonymously, privately should be allowed. We do it when we spend cash, public currency, and spend money anonymously. But typically in the digital realm, we've not been able to do that. But zcash has two type of Addresses, they have Z addresses which are private, and they have T addresses which work just like Bitcoin. They're publicly visible. But if you choose to engage in a private transaction, it's encrypted. There's a proof called a ZK snark proof that guarantees that the transaction indeed is valid. It's not. There's no double spending and that the spender has the right private key and it's following the network rules. But the transaction itself is not made public. So the validators can verify the correctness of the shielded transaction without actually seeing the content. And so you get confidentiality. Right now there's about 16.4 million ZEC outstanding of the 21 million cap and about 30% are shielded. So you can't see the transactions or the amounts on zcash's public blockchain. Now that the percent that's been transparent, that's significantly increased in the last several months. And that's because there has been more discussion about privacy with Bitcoin. And that was some of the discussions my friend was referring to. But this privacy aspect is also one of the risks. Governments don't like digital transactions to be private, so there's some regulatory risk there. A lot of more private cryptocurrencies have had difficulty getting, being allowed to be traded on various platforms because zcash has a public side and a transparent side and a shielded or private side that has, has allowed it to expand. But one of the things you can see because Bitcoin is not private, that governments can confiscate the Bitcoin. A couple weeks ago, the U.S. the U.S. department of Treasury's Office of Foreign Assets Control and the Financial Crimes Enforcement Network announced that they took action against crypto scam networks that were operating in Southeast Asia. And they seized 15 billion worth of Bitcoin. Now, they can't just seize it randomly. They have to get access to the private keys, but they're able. They were able to see that there were four Bitcoin addresses that this scam organization was using, that they were basically scamming people and sending to specific addresses. And from there they could track the Bitcoin and took enforcement action and gained control of the Bitcoin. So you're not anonymous on on Bitcoin, but with zcash you can be. And so that weighs this fundamental right to privacy versus the government wants to be able to control or guard against illicit activity. There was a report for 2024 by TRM that the total crypto transaction volume in 2024 was $10.6 trillion. That was up 56% from 2023. Illicit volume, they estimate was $45 billion. So only 0.4% of crypto transactions were illicit activity. And that was down 24% from 2023. And what type of illicit activity? Well, it's inflows to sanctioned entities, be companies or countries. It's about a third of illicit volume there. It could be entities that have been blocked. So terrorist financing about 29% and then scam and fraud about 24% of illicit volume. That includes hacking. That 70% of stolen funds in crypto space is due to the someone's getting access to the private keys or the seed phrase, the computer gets hacked. But the scams and fraud includes ransomware be Ponzi schemes. But that's, that's one of the things that we each have to decide for for ourselves. 0.4% of transactions are illicit. It's easier to do that on private crypt currencies. Most of it's done on a network called Tron, but zcash could be used for that. But how much do people value this privacy like they do if they're spending cash. But even there can't take more than $10,000 in and or out of the US because of that, the anonymity and the privacy of using cash. So I purchased some zcash and then I did additional research to remember why I had purchased it earlier. But my position 27 I bought 10, $2,700 is very, very small. And I, I marvel at the difference between my friend and I. I would be unwilling to put the amount that he invested, but he understands his space better than I. But it's interesting. There's something called the availability heuristic. It was coined by Tversky and Kahneman. We tend to put more weight on things that come easily to mind. So in, in some people's portfolio, you have Bitcoin, you have gold, and maybe you have stocks and, and in their mind they're equal. But when we look at the size of those markets, they're tiny of gold and crypto relative to the overall stock market. Well, gold not so much 28 trillion dollars, but the crypto market at less than 4 trillion with the US stock market at over 60 trillion dollars. Their importance in the economy and in this grand scheme of things for gold and cryptocurrency isn't that great. There are some use cases, but even in the defi space I mentioned AAVE or these other protocols, we look at the take up of that Compared to what we're seeing with AI, they're so small, yet the availability heuristic could make them equal in our minds and they shouldn't be. And hoarding assets, gold cryptocurrency. In my mind, I don't think that should be the majority of anyone's portfolio. I cap my exposure to these hoarding speculative assets at 20% in there. And we've gone through arguments for why. The idea that the debasement of fiat currency over time, that supply is growing so much faster of US dollar, the supply of dollars versus gold and Bitcoin. But those assets aren't generative in terms of creating wealth from innovation and increased productivity. The stock market is and. And the bond market is to the extent that it helps finance companies the source of capital, a source of debt financing for companies that trade on the stock market. That is where the innovation is occurring. Now maybe we're in a cycle where the hype regarding AI is too great. But even there, and we'll do more episodes on it, AI has some legs. It will be useful. It will create value. It just will. Because it has, because we're using it. Even despite some of the challenges that as I talked about last week about not taking financial advice from AI, I didn't say don't use AI, use it collaboratively. But that's kind of what I'm thinking about this week as I've made a small purchase of zcash because maybe it'll break out even more because of this privacy aspect as people become more comfortable with Bitcoin, using it, storing it, perhaps with zcash, I don't know. We all have fomo, we just need to have a reality check. I think my conversations with my friend have been productive as he. He is more of a risk taker. But we've talked about balancing out the portfolio more and having an allocation to stocks or a greater allocation to stocks. But don't take hoarding to an extreme. Put the bulk of your assets in areas that generate cash flow and benefit from innovation. The probability there of building wealth is just greater. Because if you don't own the right coin, maybe you won't, but it's still okay. I took a small position. We call that aspirational risk. Maybe this one will work out. But then I take profits, especially when things go very high. Which is why I have sold Bitcoin this year. Reduce that exposure. I've sold Ethereum this year, donated a charity and on our money for the rest of us substack. I talked about selling some gold coins in the New York Diamond District last week and you can check out our substack of Money for the restofus substack and you read about that experience. But we're always weighing this fomo. We get emotional as investors, but we can't let it drive our decisions. Can't let the availability heuristic to drive our decisions. We have to step back, distinguish between investing and speculating, keep hoarding in its proper place, control our emotions. And that's what we try to do and teach at money. For the rest of us, that's episode 543. Thanks for listening. Everything I've shared with you in this episode has been for general education. I'm not considered your specific risk situation and not provided investment advice. This is simply general education on money investing in the economy. Have a great week.
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