Bitcoin (CCC:BTC-USD) continues on its fairy tale run with no signs of the momentum stopping anytime soon. Altcoins, alternatives to BTC, are rising at an exponential rate. One of the net beneficiaries is Stellar Lumens (CCC:XLM-USD), trading at just 5 cents 12 months ago and now finds itself holding steady at 4o cents.
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However, it’s crucial to note that every coin uses blockchain differently. Hence, a “one-size-fits-all” policy is never effective when trading in the crypto space. Instead, it would be best to understand how each digital coin takes advantage of blockchain. The Stellar cryptocurrency is Lumens, with the token trading under the XLM symbol.
Although it has several uses, Stellar mainly serves to connect financial institutions and decrease the cost and time required for cross-border transfers. The current process for cross-border transfers is a complicated one. Local banks need to maintain accounts in foreign jurisdictions in domestic currencies. The Nostro-Vostro process— when one bank has another bank’s money on deposit — is time consuming and costly, requiring conversion and reconciliation of accounts. Stellar’s blockchain can reduce or eliminate the complexity and delays in the process.
In the interim, though, the value of Stellar Lumens will continue to ebb and flow alongside the rest of the crypto market. As of this writing, the price has once again shot up to 42.42 cents, bouncing back after it declined to 36.73 cents. However, it’s still 35% shy of its highest point this year. In the long run, XLM needs substantial and sustained institutional support to keep on rising.
Stellar Lumens Needs the Smart Money for a Sustained Rally
At this point, XLM lags behind both Bitcoin and Ethereum (CCC:ETH-USD) when it comes to price movement. One of the main reasons for that is a lack of institutional interest in XLM. In the past year, several large financial institutions have warmed up to the idea of crypto and have invested heavily in the space. However, Bitcoin remains the go-to digital coin for most of these entities.
PayPal (NASDAQ:PYPL) and Square (NYSE:SQ) both give you the ability to buy and sell crypto from their platform. Recently, Bank of New York Mellon (NYSE:BK), the nation’s oldest bank, said it would hold, transfer and issue bitcoin and other cryptocurrencies for its asset-management clients. It adds to an impressive list of companies that have already accepted Bitcoin as a form of payment. However, one has to wonder whether the same kind of fate awaits Stellar Lumens. So far, only crypto specialist Grayscale has invested in the digital coin, buying 6,568,516 XLM. With the smart money largely absent, it’s tough to advocate buying more XLM.
The volume of cross-border transactions should help increase XLM’s prominence. Just as an example, more than $500 billion is transferred cross-border through personal remittances. In 2019, India alone received $83 billion of remittances, making up 2.8% of its GDP. Sending costs can be as high as 15% when transferring money to people in emerging economies.
Under-served demographics are forced to pay Money Transfer Operators (MTOs), like MoneyGram (NASDAQ:MGI), exorbitant fees to transfer their capital, and that’s why Stellar Lumens is an attractive play.
Technical Analysis
Stellar‘s XLM continues to fight around the 40-cent level, with bulls struggling to keep prices from falling below support at 38 cents before spiking up to current levels on March 20.
In the last week alone, we have already seen the price oscillate quite a bit. It’s a possibility if the price falls lower, bulls will stabilize the price at approximately 37 cents Meanwhile, it’s sitting between the critical resistance levels of 40.6 cents and 44 cents.
The XLM price should test and eventually breakout from these resistance levels as it has been locked in a sideways pattern, leading to the emergence of a squeeze pattern. XLM price surged from mid-November 2020 to the Feb. 13 high of 60.83 cents, an overall gain of 670%.
Something has to give, and considering the overall upward trajectory of BTC, one can see bulls pushing Stellar to new yearly highs.
There is money to be made in the short-term on this digital currency. The altcoin remains attractively valued when you compare it to BTC and ETH. But its potential to become the next market leader will rest solely on whether institutions will buy into its story, which is an attractive one.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.