Zcash suffers a Zc(r)ash

Key insights

Late last week, BTC fell below $60K for the first time since October 2024 as a combination of ETF outflows, renewed geopolitical uncertainty and concerns around the digital asset treasury model weighed on risk sentiment. 

The selloff triggered a sharp deterioration in derivatives market positioning, with traders paying a significant premium for downside protection.

While options markets initially priced in a substantial increase in expected volatility, that premium has since faded, suggesting traders expect a slightly calmer market environment ahead. 

Short-dated implied volatility has fallen back to 45%, though the volatility term structure remains modestly inverted. 

Bearish positioning is also evident in perpetual futures markets, where ETH funding rates fell below -0.01% for only the 3rd time this year as traders continue to pay a premium to maintain short exposure.

Block Scholes BTC Risk Appetite Index

Block Scholes ETH Risk Appetite Index

Bearish positioning builds across derivatives markets

An almost 20% drop in BTC’s spot price last week has been reflected by a significant leg lower in our Block Scholes Risk Appetite Index. 

That selloff was driven by a confluence of factors: 

• A June 1, 2026 filing from the largest BTC digital asset treasury company, Michael Saylor’s Strategy Inc., announced that the firm had sold 32 of its 845,256 BTC hoard. While a seemingly insignificant amount relative to the firm’s total holdings, markets took the disclosure as having undermined confidence in the digital asset treasury model Strategy has pioneered. 
• The longest spot Bitcoin ETF outflow streak since launch, which, after a brief pause, has continued once again. 
• A continued rollercoaster of headlines around the Middle East conflict and dimming prospects of a Tehran-Washington peace deal. 

As such, last Friday (June 5, 2026), BTC fell below $60K for the first time since October 2024. 

The impact of a sub-$60K BTC price has, most meaningfully, been felt in derivatives markets. 

7-day BTC put-call skew traded at -19%, as traders showed a strong willingness to pay a significant premium for downside puts over upside calls. That revealed a market positioning for, and protecting against, further drops in spot price. The last time short-dated skew traded that negatively was in late February 2026 when spot price fell below $63K after President Trump’s announcement to raise global tariffs to 15%. 

DECODE: 25-delta skew: the implied-volatility gap between equally out-of-the-money puts and calls; a more negative reading means traders are paying up for downside protection

While skew has since abated from those deeply negative levels, traders still show an outsized demand for protection as short-dated skew still trades at -9%.

At-the-money implied volatility, the market's forward-looking estimate of how much volatility BTC will trade with over a future period of time, jumped to as high as 64% as spot price fell below the key $60K support level. That was close to a 2x jump from June 1, when 7-day ATM IV traded at just 34%, close to a year-to-date low. 

Since then, implied has fallen 20 percentage points down to 45%. The term structure of at-the-money implied volatility is now only modestly inverted. In other words, short-dated options still trade at a premium over longer-tenor contracts, though that premium has compressed over the past few days. 

Interestingly, while the premium traders demand for at-the-money options has dropped again, 7-day realized volatility, a measure of how much volatility BTC has actually traded with over the past 7 days, has remained significantly high. From June 1, realized volatility more than doubled from 29% to 71%. 

That now means options markets now expect BTC to trade with a much lower volatility over the next 7 days than what has recently been delivered.

The same bearish positioning is also apparent in perpetual futures markets.

The 7-day rolling funding rate for ETH — a rolling average of the periodic payments exchanged between longs and shorts to keep the perpetual contract anchored to spot — fell below -0.01% for only the 3rd time this year. The last time it fell to this level was on April 19, 2026, when President Trump threatened to significantly intensify the conflict with Iran should it not agree to a ceasefire.

DECODE: Negative funding rates indicate short traders are willing to pay longs to keep their position open. This is a sign that demand to be short outweighs demand to be long, and that traders are willing to pay a premium to express bearish exposure.

Zcash: Infinite Supply Vulnerability Uncovered

21M “Fixed” Supply

Zcash crashed to lows of 50% this week after a June 4 report disclosed that a critical vulnerability had been discovered and subsequently fixed in the network’s privacy pool, Orchard, where private transactions are created and verified. 

If exploited, the vulnerability would have allowed an attacker to “undetectably create an unlimited amount of counterfeit ZEC” that the network would have accepted as genuine.

The counterfeit tokens would have been cryptographically indistinguishable from genuine tokens, leaving no visible on-chain signature.

Zcash launched on October 28, 2016. It is based on a fork of Bitcoin’s codebase and, like Bitcoin, has a hard supply cap of 21 million coins. 

However, Zcash’s key distinction is its privacy technology – the use of cryptographic methods that allows users to send “shielded” transactions that can be cryptographically verified by the network of miners without revealing who sent the funds, who received them, or how much was transferred. 

At the same time, Zcash also supports transparent transactions, giving users the option to choose between privacy and visibility.

The bug was identified during an AI-assisted audit of the Orchard circuit, using a custom “zcash-full-stack-auditor” framework running Anthropic’s newly released Opus 4.8.

On May 29, one of the audit agents flagged a critical issue in the Orchard circuit. Earlier audits using Opus 4.7 had not found the issue. By contrast, Opus 4.8 surfaced it in about one in four generic runs, despite Orchard having passed in-depth human audits before launch.

AI was used proactively to find the vulnerability, but this exposes a bittersweet reality: the same tools can also be used offensively.

The timeline of the discovery of the vulnerability is documented in the table below, by security researcher Taylor Hornby who discovered this bug as part of a broader effort at Shielded Labs, an independent Zcash organization.

ZEC shed 50% of its value in the 24 hours after the Jun 4, 2026 disclosure, falling from $558 to $264 before stabilizing slightly around $320. 

Despite the large one-day drop, the token was still up more than 500% from the sub-$50 levels at which it had traded exactly one year earlier. 

We can see this drop alongside the timeline of events in dotted lines, as documented in the table above and the immediate crash in spot following the public disclosure of this bug on X at 21:17 UTC, Jun 4, 2026. 

Despite the dramatic fall in Zcash, it has still outperformed both BTC and ETH since May 1, 2026. BTC fell around 20% and ETH around 28%, whereas ZEC has risen around 33% over the same period despite the crash.

The Privacy Coin Resurgence 

Despite its 50% crash, Zcash is still outperforming BTC and ETH YTD, having rallied as part of a broader resurgence in privacy tokens that had been prominent during 2017–18 and 2020–21 altcoin seasons, as the market rotated back toward the “financial privacy” narrative.

Privacy coins are cryptocurrencies designed to obscure transaction details such as the sender, receiver, and amount. 

Other privacy coins including Monero (XMR), Zcash (ZEC), Dash (DASH), and Horizen (ZEN) rallied over the same period.

Within that move, Zcash was the standout performer. 

Its rally exceeded the gains of the other major privacy coins and pushed ZEC ahead of Monero (XMR) by market capitalization, changing the ranking of the privacy-coin market.

Zcash outperformed other privacy tokens because its rally was supported by catalysts that went beyond the broader privacy-coin narrative. The key regulatory catalyst came in January 2026, when the SEC closed its roughly two-year investigation into the Zcash Foundation with no enforcement action. 

This was followed by more visible institutional interest, including Bitwise Asset Management’s Zcash ETF filing and the existing Grayscale Zcash Trust, which gave investors clearer regulated routes to gain ZEC exposure.

At the same time, reported accumulation by crypto treasuries and funds, including Cypherpunk Technologies and Arthur Hayes-linked Maelstrom, coincided with Foundry’s launch of an institutional ZEC mining pool.

Was it exploited? 

Because Orchard is private by design, there was no cryptographic way to prove whether the bug had been exploited before it was fixed. 

Shielded Labs, the organization that discovered the bug, said it considered prior exploitation unlikely based on the fact that the bug had evaded years of expert review, was found through a commissioned audit using newly released AI tooling, and was remediated within a short window once discovered.

According to a blog post from the Zcash Foundation, “The vulnerability was caught before any known exploitation occurred.” 

Despite this vulnerability being contained within Zcash’s protocol, other privacy tokens fell to their subsequent lows after the June 4 disclosure, with XMR declining around 20%, ZEN around 21%, and DASH around 12%. 

The incident highlights the core trade-off of zero-knowledge systems: privacy protects users from public surveillance, but that same opacity can make exploits, such as counterfeit funds, difficult to prove and impossible to track if an exploit occurs.

As next steps, Zcash and Shielded Labs are exploring “a proposed Network Upgrade to allow anyone to verify the integrity of the Zcash supply and to prove the non-existence of counterfeit Zcash in the Orchard pool.” Zcash has rebounded from its post-disclosure lows as the market appears reassured that the vulnerability was found proactively, with no proven exploitation, and remediated quickly. The upcoming upgrade to verify Zcash’s supply has also helped reframe the incident from a protocol failure into a confidence-building audit outcome, with the Foundation and Shielded Labs presenting the discovery as evidence that the system’s review process is working.

What’s New in DeFi?

What’s New in DeFi?

1) Strategy purchased a further 1,550 BTC ($101.3M) last week (June 1-7), days after disclosing its first bitcoin sale since 2022.

Separately, shareholders approved a change to the dividend schedule on its STRC preferred stock, moving from monthly to semi-monthly (twice-monthly) payments from the end of June.

The firm said the more frequent distributions are intended to improve liquidity and reduce price volatility in the preferred stock.

2) Morpho, an onchain lending protocol, raised $175M in a round co-led by a16z crypto, Paradigm and Ribbit Capital, with additional participation from Apollo, Circle's venture arm and VanEck.

According to the protocol, it is the largest funding round in DeFi to date, valuing Morpho at around $2B. The capital will go toward deepening integrations and building infrastructure for programmable credit products.

Morpho's open credit network now holds more than $11B in deposits and is used by firms including Coinbase, Kraken, Binance, Galaxy and Anchorage Digital.

3) ) Jupiter has launched Forecast, which it describes as Solana's first fully native prediction market.

Rather than routing all trades through a single liquidity pool, Forecast lets multiple proprietary automated market makers post competing quotes, matching users with the best available price at any given moment.

It is being integrated into Jupiter's existing Jup Predict product, starting with short-dated 15-minute crypto markets, and the team has said it will continue to support Polymarket's markets alongside it.

4) The SEC published a draft of its 2026–2030 Strategic Plan, formally naming digital assets, capital formation and technological modernisation among its core priorities.

Under Chairman Paul Atkins, the agency signalled a shift away from regulation-by-enforcement toward a "clear and practical", principles-based framework, citing tokenised offerings and on-chain infrastructure as areas where it wants to enable compliant capital formation.

The draft also flags clearer jurisdictional boundaries with the CFTC and is open for public comment through 2 July 2026.

5) Grayscale filed an S-1 application for a spot ETF tracking Canton Coin (CC), the native token of the Canton Network, with the fund proposed to list on NYSE Arca.

The trust would hold CC directly. The filing follows Grayscale's recent run of single-asset product launches and notes meaningful concentration risk, disclosing that the 100 largest wallets control roughly 89% of CC's circulating supply.

6) Decentralised lending protocol Aave is weighing a new risk-management framework proposed by LlamaRisk, introducing standardised assessments for asset, bridge and blockchain risks alongside automated monitoring tools across the protocol.

The proposal follows April's $292M KelpDAO rsETH bridge exploit, which spilled into Aave after stolen assets were deposited as collateral and used to borrow funds, raising concerns about bad debt and cross-protocol contagion.

Founder Stani Kulechov said the framework would set a new risk standard across Aave V3, V4 and Horizon, adding that assets failing to meet the updated requirements could be removed from the protocol in the coming weeks.

7) Japan's Financial Services Agency formally recognised qualifying foreign-issued stablecoins as electronic payment instruments under its revised Payment Services Act framework, effective 1 June.

Trust-type stablecoins issued abroad can now operate in Japan — and are excluded from securities treatment — provided issuers meet licensing, collateral and audit requirements.

8) Bitmine Immersion Technologies, the largest corporate holder of ETH, said its treasury grew by 126,971 ETH over the past week to 5.54M ETH — around 4.59% of Ethereum's total supply — with total crypto, cash and other holdings valued at $9.6B.

Chairman Tom Lee said the firm accelerated purchases into recent market weakness and reiterated its goal of controlling 5% of ETH supply in 2026.

Bitmine said more than 4.7M ETH of its holdings are currently staked, generating an estimated $230M in annualised staking revenue.

9) SOL Strategies (Nasdaq: STKE), a Solana-focused treasury company, sold 65,001 SOL to repay roughly C$5.75M of debt as part of an active treasury and risk-management programme.

The firm framed the sale as a deliberate move to de-lever and clean up its balance sheet during a period of market volatility, allowing management to focus on its core operating businesses.

10) The Hong Kong Monetary Authority established a Tokenised Bond Expert Group, bringing together banks, law firms, technology providers and market-infrastructure participants to help develop and scale the city's tokenised bond market.

The group's first discussions focused on how Hong Kong's existing legal and regulatory framework applies to tokenised bond issuance and trading, with feedback set to inform a broader review of the jurisdiction's tokenisation rules.

The move builds on earlier HKMA initiatives, including the world's first tokenised government green bond in 2023.

11) Visa is working with stablecoin infrastructure provider Brale on a proof of concept to test institutional settlement using SBC, a US-dollar-backed stablecoin, on the Canton Network.

The pilot will assess whether Canton's privacy-focused architecture can support institutional payment settlement while limiting the visibility of sensitive transaction data, as Visa continues to expand its stablecoin settlement infrastructure.

12) The UK's Financial Conduct Authority proposed allowing authorised investment funds, including UCITS and most retail-focused funds, to allocate up to 10% of assets to crypto exchange-traded notes (ETNs).

Qualifying funds would be able to hold crypto ETNs listed on recognised UK and international exchanges, with the 10% cap intended to limit risk.

The FCA stressed that it is not currently considering allowing authorised funds to hold crypto assets directly, pending further development of the UK's broader crypto regulatory framework.

13) Goldman Sachs partnered with Apex Group and Archax - alongside LRC Group and Ownera - to launch a blockchain-native tokenised real estate fund.

Built on Goldman's GS DAP platform within a regulated Luxembourg structure, the fund aims to bring fractional ownership and improved liquidity to traditionally illiquid real estate.

Apex acts as the fund's manager and administrator, while Archax serves as custodian for the digital securities and the initial distribution partner.

The Latest Listings - QNTXUSDT‍

Quantinuum is a full-stack quantum computing company that recently became publicly traded, listing on the Nasdaq under the ticker QNT after one of the largest-ever IPOs in the quantum sector.

The company was formed in 2021 through the merger of Honeywell's quantum computing division and Cambridge Quantum, combining trapped-ion hardware with quantum software and algorithms. Honeywell remains its largest shareholder.

Quantinuum is described as "full-stack" because it builds across the entire quantum computing chain.

This means it develops both the physical quantum hardware — the systems that perform quantum calculations — and the software, error-correction techniques and algorithms that run on top of it. Rather than specialising in one layer, the company works across the whole stack, from the underlying machines to the applications built on them.

This is significantly important with quantum computing emerging as one of the next major frontiers in advanced computing.

Quantum computers process information in a fundamentally different way to traditional computers, using the properties of quantum mechanics to tackle certain problems that are extremely difficult for conventional machines.

Quantinuum's relevance comes from its position as one of the most established names in the field, with hardware based on trapped-ion technology and a customer and research base that already includes large enterprises and institutions such as Airbus, BMW Group, JPMorgan, Amgen and national research bodies.

Its public listing also places it within a broader market theme.

As with artificial intelligence, investors have increasingly looked for ways to gain exposure to the companies building the foundational infrastructure of the next computing era. 

Quantinuum's IPO gives market participants a direct, listed way to access the quantum computing sector, which until recently was largely confined to private firms and corporate research divisions.

At the same time, the company operates in an early-stage, capital-intensive industry. Quantum computing remains in a developmental phase, commercial revenues are still modest relative to investment, and the company reported a significant net loss in its most recent financial year. As a result, it carries meaningful execution risk alongside its long-term potential.

For market participants, Quantinuum is notable as a newly public, pure-play quantum computing company, offering exposure to one of the most closely watched emerging themes in advanced technology.

Bybit listed the QNTXUSDT Perpetual Contract on June 9, 2026. Trading is now open with up to 10x leverage.