In brief
- Traders are unwinding defensive derivatives positions in privacy assets to fund leveraged bets on high-momentum sectors, driving the divergence.
- The rotation is possible because privacy coins held value well during the late-2025 downturn, making them a source of profit for investors seeking quick gains.
- Despite the sell-off, experts and developers see growing underlying demand for privacy, expecting a resurgence in the sector during future periods of regulatory uncertainty or risk-off sentiment.
Privacy-focused cryptocurrencies are underperforming as Bitcoin’s rally above $90,000 has ignited a wave of speculative trading, prompting investors to rotate capital out of defensive holdings.
The sector, with a total market capitalization exceeding $18.8 billion, is down 2.3% over the past 24 hours, according to CoinGecko data. Leading tokens like Midnight, Monero and Canton Network are in the red, dropping 6.4%, 1.5% and 3.3% respectively. This performance contrasts sharply with the double-digit gains seen in major meme coins during the same period.
Analysts frame the divergence as a classic rotation driven by shifting market psychology. This move “isn’t fundamental; it’s driven by short-term capital rotation,” Rachel Lin, CEO of SynFutures, told Decrypt.
“As major altcoins stage a relief rally, traders are reallocating toward higher-beta sectors offering faster momentum and deeper liquidity, particularly meme coins,” Lin explained. “Privacy coins held up relatively well during the broader market downturn, which made them a natural source of funds once risk appetite returned.”
This behavior is mirrored in derivatives activity, where traders are unwinding defensive positions to pursue volatility. The rotation represents a tactical shift in a recovering market rather than a strategic abandonment of the privacy sector.
“The recent pullback in privacy-focused assets reflects a healthy and expected correction after a period of relative outperformance,” Jamie Elkaleh, CMO of Bitget Wallet, told Decrypt. “As markets enter a New Year relief rally and broader risk appetite improves, investors are locking in gains and rotating capital elsewhere.”
The long-term prospects for privacy coins
While down over 24 hours, the privacy coin sector showed relative resilience in late 2025. Their current weakness coincides with a clear surge in speculative activity elsewhere, indicating that capital is chasing momentum.
Both analysts agree the trend does not undermine the sector's long-term thesis. “This profit-taking does not signal a breakdown in the privacy narrative,” Elkaleh noted. Lin added that these assets “historically tend to outperform during periods of regulatory uncertainty or risk-off sentiment.”
This long-term view is echoed by privacy-focused developers. “The attention on privacy coins will come and go, but one thing the recent hype cycle made clear was that there has been growing demand for privacy in the space, and that is not going anywhere,” SethForPrivacy, COO of CakeWallet, told Decrypt. “To have such large projects pivot into privacy... shows the strength of user demand, and I only expect that to continue to grow over 2026.”
For now, the slump in privacy tokens underscores a market in transition, where early-stage recovery is characterized by capital flowing from safety to speculation.
The wider market outlook remains cautious, with the Crypto Fear and Greed Index remaining in “fear” territory.
The same can be seen on prediction market Myriad, owned by Decrypt’s parent company Dastan, where users have assigned an 18% chance that an alt season kickstarts in the first quarter of 2026.