- Zcash has been experiencing a 0.11% daily inflation rate recently.
- The market is trading within a range bound between $58.44 and $64.31.
- Support moving forward: $61.57, $58.44, $54.27, $51.78, $49.01.
- Resistance moving forward: $64.31, $67.95, $70.67, $80.69, $84.22, $89.29.
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Inflation is one of the biggest problems that fiat-based currencies face as governments make the decision to print money through an economic expansionary monetary policy known as quantitative easing.
This process of printing money and expanding the money supply causes the purchasing power of money to erode which is bad for the owners of the particular currency as effectively they will receive less goods and services for their money.
Cryptocurrencies are designed to combat this problem by restricting the supply of the cryptocurrency to a set figure. However, as the supply reaches its ceiling, the cryptocurrency market does indeed experience inflation along a predetermined inflationary curve.
For example, Bitcoin experiences around a 0.01% inflation rate per day while Ethereum experiences a 0.02% inflation rate.
However, the privacy-focused cryptocurrency Zcash has been experiencing a significantly higher rate of issuance and inflation in the recent period, an issue that is concerning to the community and the CEO himself.
Zooko recently tweeted some statistics which shows that ZCash is experiencing around $400,000 new coin issuances per day, which produces a daily inflation rate of around 0.11%.
As expected, the github thread about radically revamping Zcash mining is heating up. https://t.co/vUoILxwQX0 It’s important, because at today’s prices there is more than $400K/day of new Zcash issuance: https://t.co/D7imLPsfse pic.twitter.com/tThFy53LRF
— zooko (@zooko) January 2, 2019
His tweet points to a GitHub page, known as Harmony Mining, which proposes a change in the PoW algorithm which will be implemented in the Zcash Blossom upgrade if accepted.
The change proposes a switch to a dual-algorithm which will spread issuance and political influence among distinct types of stakeholders. One of the algorithms will be backward-compatible with ASICs and the other will work well with GPUs on a temporary time scale. This will thereby help reduce the rate of issuance among different parties that mine with different algorithms.
Let us continue to take a look at price action for ZEC/USD over the short term and highlight any potential areas of support and resistance moving forward.
ZEC Price Analysis
Zcash has seen a price hike totaling 3.06% over the past 24 hours of trading, bringing the current trading price up to around $61.64, at the time of writing.
Zcash is now ranked in 20th position as it presently holds a $347 million market cap value. The 26-month old project has seen a precipitous 45% price plummet over the previous 90 trading days as it now trades at a value that is 92% lower than the all-time high price.
Looking the market from the short-term 4-hour chart above, we can see that ZEC/USD had dropped to a yearly low of $49.01 on December 15, 2018 before rebounding.
The market then went on to rally through the second half of December 2018 to reach a high just above $70.
This area contained resistance provided by the bearish .236 Fibonacci Retracement level (drawn in red) priced at $70.67. This bearish Fibonacci Retracement level is measured from the high seen during November 2018 to the low seen during December 2018.
The market then went on to fall until it briefly found support underneath the short-term .618 Fibonacci Retracement level (drawn in green) priced at $58.44. Price action has since remained within a tight trading range trapped between $58.44 and $64.31.
The market is trading within a sideways manner, trapped between the range defined above.
For the market to be considered bullish, we would need to see price action break above the previous high around the $70 handle. On the other hand, price action would need to break below the previous low around the $57 area for the market to be considered bearish.
Where is the Support for ZEC Beneath the Market?
If the bears pressure price action lower, they will find immediate resistance toward the downside at the short-term .5 FIbonacci Retracement level (drawn a in green) priced at $61.38. This is closely followed by more support at the lower boundary of the trading range priced at $58.44.
If the sellers manage to cause ZEC/USD to break below the lower boundary of the range, then further support below can be located at the short-term .786 and .886 Fibonacci Retracement levels (drawn in green), priced at $54.27 and $51.78 respectively.
Further support below this can then be expected at the 2018 low, priced around the $49 handle.
Where is the Resistance Above the Trading Range?
If the buyers can step in and push price action above the upper boundary of the trading range at $64.31, we can expect further higher resistance to be located at the short-term .236 Fibonacci Retracement level (drawn in green) priced at $67.95.
Further resistance above this can then be located at the bearish .236 Fibonacci Retracement level (drawn in red) priced at $70.67.
If the bulls can continue to push price action higher, more resistance above can be located at the short-term 1.272 and 1.414 FIbonacci Extension levels (drawn in blue), priced at $80.69 and $84.22 respectively. The resistance at $84 is further bolstered by the bearish .382 Fibonacci Retracement level (drawn in red) priced at $83.90.
The final level of resistance to highlight is the 1.618 Fibonacci Extension level (drawn in blue) priced at $89.29.
Being anti-inflationary is an important factor for cryptocurrency. However, for the project to become anti-inflationary, the supply hard cap has to be reached first. This means that the cryptocurrency may experience periods of heavy inflation if the rate of issuance increases for short periods of time.
The Zcash team is already aware of this problem and already exploring options to combat this.