Given the recent market hype surrounding cryptocurrency, is Stellar Lumens (CCC:XLM-USD) worth a shot? Cryptocurrencies are inherently volatile, and it’s easy to argue that they represent a bubble.
My point is that investors who choose to do so, should choose to do so wisely. The simple advice here is this: don’t bet any more than you are willing to lose.
Okay, I’ll step down from my soapbox now. Let’s try to figure out if XLM’s 500%+ price appreciation since mid-November makes sense.
Appreciation
I’ll be the first to admit that the cryptocurrency market remains largely opaque to me. That’s why I believe in using Bitcoin (CCC:BTC-USD) as an anchor point. As the leader in the market, it should largely pull other cryptos up or down with its price movements. To a lesser degree, that’s also true of Ethereum (CCC:ETH-USD).
Stellar Lumens took off out of nowhere on Nov. 19. Bitcoin began its ascent from $11k to its current price above $55k in late October. Ethereum didn’t begin its recent price tripling until sometime around Christmas.
It’s difficult for me to say that XLM is simply the beneficiary of the larger cryptocurrency push.
It looks like it rose somewhat independently of the market leaders.
Of course, XLM could also catch on with r/wallstreetbets, celebrities, celebrity investors, or any of the other groups who’ve managed to shake up Wall Street of late. Then it could really explode.
What’s The Use?
One of the uses of Stellar Lumens, Lumens being Stellar’s native token, is that you can digitize value and then issue and redeem claims on it. That means users can turn any asset into a token. The token is really a representation of that particular asset which can then be traded.
The company also has its own native currency called Lumens. The important thing to remember is that Stellar allows any asset to be tokenized and then traded through its platform.
Stellar also allows two parties in distinct countries to make and receive payments without exchange risk or delays.
The example the company gives on its website is one in which an American company settles a bill with a Mexican company by paying in USD tokens while the Mexican company receives Mexican Pesos. Basically, neither side can end up holding currency that they don’t want as the transaction is settled as a single movement on Stellar’s ledger.
Supply
There are currently 50 billion Lumens in existence. But it wasn’t always that way. When the network came online in 2014, 100 billion Lumens were issued. They aren’t mined as Bitcoin is. They were simply issued at that time and then the supply was increased by 1% annually thereafter.
That policy was ended in 2019 when the total supply was limited to 50 billion for the entirety of the currency. It will not be increased according to the Stellar website.
Of the 50 billion Lumens that exist, 20 billion are currently in circulation. The Stellar Development Foundation holds the remaining 30 billion coins. It will use them to develop and promote the currency and platform.
Adoption
Currently, Stellar has 4.3 million accounts using its platform. The company requires that each account hold 1 Lumen minimum. I have no idea if Stellar will grow or shrink, but it is currently one of the larger cryptos.
The company’s current 22.46 billion coins in circulation put its market capitalization north of $11 billion. XLM currently trades above 50 cents each coin.
Takeaway
Whenever I write about crypto I try to provide as many facts as I can. Everything is obviously shaking out in the space and placing a value on a given cryptocurrency is exceedingly difficult. Frankly, there isn’t much to compare against.
One important aspect is what actual use do we as potential investors know a given cryptocurrency possesses? I laid out some of that above. I can’t say that that means you should go out and buy XLM or not based on that. In fact, despite understanding a bit about XLM myself now, I believe it remains speculative at best. I feel the same about Bitcoin as well.
Honestly though, why not gamble a bit? Times are crazy. Markets are nuts. Just don’t bite off more XLM than you can chew.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
