With cryptocurrencies once again popular among investors, it’s no surprise the price of Stellar Lumens (CCC:XLM-USD) continues to climb. Before the mad rush back into crypto late last year, it traded for around 10 cents. Today? It trades at around 42 cents, after pulling back from its recent high of around 52 cents.
While getting close to hitting all-time highs set during the last “crypto bubble” in 2017 and 2018, the party may not be over just yet.
Institutional investors so far have focused on Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD), but this rising “altcoin” star may have a shot of eventually joining its ranks.
Before you jump into this name, keep a few things in mind. There’s a solid case for the underlying utility of XLM. However, it may be a while before it earns the confidence of the “smart money” currently enamored with Bitcoin and Ethereum.
Also, besides the prospects for these specific cryptos, there’s the future direction of the overall crypto market to consider. It’s still unclear whether the enthusiasm we are seeing now is the 21st century’s answer to the Dutch Tulip Bubble of the 1600s.
So far, the idea that this time it’s different has remained the dominant narrative, but there’s no guarantee that won’t change.
So, what’s the play here, as XLM trades around 40 cents per share? Risk-averse investors should tread carefully, but there may still be room for this crypto to run. Retail investors remain excited for the big potential gains in this and other speculative cryptos. I wouldn’t bet the ranch, but I wouldn’t fight the trend, either.
Why Stellar Lumens Could Be the Next Big ‘Altcoin’
Those who have stuck just to Bitcoin have seen outstanding returns in the past few months. But, the opportunity for even more outsized gains has been found among the “altcoins.” Those are the smaller cryptocurrencies, that have gained a degree of legitimacy among investors
The “altcoin” most top of mind right now is Dogecoin (CCC:DOGE-USD). As InvestorPlace’s David Moadel wrote, traders on Reddit’s r/WallStreetBets, along with Elon Musk, have fueled its stunning ten-fold rally since December.
In his analysis, Moadel made the case why Stellar Lumens could be the next Dogecoin. If the Reddit retail frenzy continues in both stocks and cryptos, I agree this remains a possibility. In fact, with its strengths, there may be a stronger bull case to be made for this crypto relative to Dogecoin, which really hasn’t strayed far from its meme roots.
XLM’s underlying strengths alone don’t guarantee it’ll continue to climb. But, relative to other rising “altcoin” stars, it seems to be the one that has the greatest shot of long-term success.
XLM’s Utility, Store of Value Strengths
With the continued rush into Stellar Lumens, retail investors have spoken. The question now is whether institutional investors (the so-called “smart money”) will jump in as well. Institutional inflows have been a major factor behind the recent strong performance of Bitcoin and Ethereum.
What does that mean? XLM needs big institutional dollar inflows to give it runway in the coming years. Will this happen? It’s possible, given that there’s sufficient social proof for its utility in global fund remittance.
For example, IBM (NYSE:IBM) went with Stellar’s technology when it launched its World Wire project to find a faster, cheaper way to remit funds internationally.
IBM isn’t the only established company to partner with it. For example, Stripe provided some of the seed funding for the non-profit organization behind Stellar.
This utility could convince the “smart money” that XLM isn’t just a risky crypto for Reddit traders to gamble on. The limited supply of Lumens (what the coin itself is called, Stellar refers to its network) may point to its strengths as a “store of value.” Yet, so far news of institutional inflows has been limited.
Crypto asset manager Greyscale has an investment vehicle offering hassle-free exposure to Stellar Lumens. However, it make take some time before Wall Street starts allocating serious money to this “altcoin.”
Bottom Line: Big Potential, but Be Careful
Given its potential for cross-border financial transactions, XLM has proven its utility. But, all bets are off whether the “smart money” begins to see this as a crypto to invest in with full force.
XLM still has a small total market capitalization of around $10.75 billion, which means it may be years before XLM is ready for prime time.
As retail investor mania for both speculative stocks and speculative cryptos remains, prices could continue to rise. Those who are willing to risk big losses could find opportunity here with Stellar Lumen. However, tread carefully. More speculative coins like this one could see more dramatic declines if the “crypto bubble” pops in the coming year.
On the date of publication, Thomas Niel held a long position in Bitcoin.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.