We’ve seen most altcoins start to make a recovery. But not Stellar Lumens (CCC:XLM-USD). After falling from as high as around 79.6 cents just before the sell-off, to briefly under 30 cents, it barely made a bounce back. In fact, as it’s trading hands at around 35 cents, Lumens (what the coin itself is called) is showing signs of trending even lower.
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What’s behind this? One key reason is its lack of exposure to recent trends in crypto. That is, other coins have the DeFi (decentralized finance) catalyst to fall back on. But, XLM? It’s similar to XRP (CCC:XRP-USD), the native coin of Ripple, which has scant exposure to this trend.
Admittedly, it doesn’t necessarily need to have high DeFi capabilities to gain in popularity. Like XRP, this is a coin focused on international funds remittance. It too offers up a faster, lower cost alternative to transfers conducted through the traditional financial system.
In the long run, Stellar (what the network itself is called) could become widely used. In theory, this will help increase the value of its native coin. Still, it’s unclear whether that’s going to be the case. With the “hotter” altcoins offering you greater potential for gains, there’s little reason to give this one much consideration.
Stellar Lumens Can Disrupt Remittance
Lately, altcoins with high DeFi capability have been in vogue. That’s why Ethereum (CCC:ETH-USD), most commonly used in such transactions (like staking) has held up relatively better than Bitcoin (CCC:BTC-USD) post-correction. And, it’s why other DeFi-focused coins, like Cardano (CCC:ADA-USD), have been resilient as well.
Stellar Lumens may be focused on a less popular area (international funds remittance). But it’s a niche that crypto could easily disrupt. Even in today’s globalized world, the traditional remittance system remains inefficient. Transaction fees are still high. And it takes days for transfers to clear.
For example, as Stellar itself discusses on its website, the fees foreign workers pay on the $500 billion in remittances they send each year average around 7-8%. For transfers to some developing economies, fees can top 15%. However, this alternative provides a faster, cheaper alternative. Transactions complete in 3-5 seconds. As for fees? A fraction of the fees charged by traditional Money Transfer Operators (MTOs).
Sounds good right? But there are two key caveats. One, this network is still working to gain critical mass. It could take time before this becomes a major alternative to old-school MTOs. Second, while the technology behind it has big potential, this may not translate into substantially higher XLM prices over time. That’s not to say it’s going to continue trending lower. But relative to other opportunities (in either crypto, or even stocks), this doesn’t appear to have the makings of a great long-term investment.
Network Growth May Not Help Its Coin Price
It’s clear that the Stellar network could take off. Its technology could one day be in high demand, as it offers a faster, cheaper way to remit money overseas. Yet this alone may not translate into XLM going “to the moon,” whether in the near-term or a few years down the road.
Why? Stellar Lumens may require the use of its native coin for paying transaction fees. But it’s not the only medium of exchange you can use on its platform. In fact, as its network was built for the purpose of tokenizing fiat currencies, you can use USD Coin (CCC:USDC), or other stable coins backed by other currencies, to conduct transactions.
This could limit how much XLM rises in value relative to other altcoins. Granted, the platform requires all users to hold one Lumen as well to use the network. The number of Lumens is fixed at 50 billion forever. In theory, as more users join it to remit money who all need to hold at least one Lumen, over time its coin price could be boosted.
But this long-term appreciation could end falling far short of your expectations. Instead of this climbing from 34 cents today to $1, $5 or even $10, down the road, gains may end up much more gradual. It might trail not only other cryptocurrencies, but traditional investing indices, like the S&P 500 as well.
A Great Idea, But Not a Great Crypto Opportunity
The Stellar network could end up becoming a major disruptive force long-term. But the price of Lumens? It may be tougher for it to get back towards its recent highs, much less soar in value in the way altcoins like ETH and ADA have in the past year.
Stellar Lumens may be a crypto project offering up a solution to a longstanding problem (time-consuming and costly fund remittances). But as an investment opportunity? Look elsewhere.
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On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. He did not have (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.