Despite a few hiccups, the crypto rally shows no signs of slowing down. Bitcoin (CCC:BTC-USD) surpassed $50,000 on March 3, brushing off remarks made by Gary Gensler, President Joe Biden’s pick for chairman of the U.S. Securities and Exchange Commission. Gensler warned that it would be tough to regulate crypto markets and keep them free from fraud. So where does Stellar Lumens (CCC:XLM-USD) fit into all this?
Stellar Development Foundation pioneered the digital Stellar cryptocurrency, which is traded under the symbol XLM on various cryptocurrency exchanges.
Lumens, the organization’s currency, has surged more than 200% since the start of 2021. However, it has cooled down a bit, turning some investors bearish on XLM once again.
After reaching 61 cents on Feb. 13, the digital token has given way and is now trading at 41 cents. The path to recovery will be long, since XLM needs big institutional support for a sustained rally. For now, it seems content to rise in Bitcoin’s shadow. But its focus on the unbanked is an Achilles heel.
However, there has been some positive traction that instills hope for XLM’s future. In January, the Stellar Development Foundation inked a memorandum of understanding with Ukraine’s Ministry of Digital Transformation. The exact details of the partnership are sketchy at this stage.
According to the press release accompanying the announcement, Stellar will help the government develop a strategy for virtual assets in Ukraine and aid the central banking authority in various digital currency initiatives.
More announcements like the one above are needed to convince investors to invest in Stellar Lumens. Otherwise, many will be forced to convert their XLM holdings into Bitcoin, as it’s a far more attractive investment.
Stellar Lumens Needs Institutional Support for a Sustained Rally
Stellar’s primary focus is on emerging economies. It refrains from charging individuals or institutions for using its network. People outside the scope of remittances and bank loans in developing countries use its distributed exchange mode as a cross-border transfer and payment system.
The aim of the network is to significantly reduce transaction costs and time lags. In that respect, it has a leg up on Bitcoin, which falters substantially when it comes to transaction times.
However, where Bitcoin takes the cake is institutional backing. Not a day goes by when we don’t see another company jumping into the mix and trying to take advantage of the massive rally. Bank of New York Mellon (NYSE:BK), the nation’s oldest bank, recently announced it would begin supporting Bitcoin and other digital currencies. PayPal (NASDAQ:PYPL) and Square (NYSE:SQ) already support Bitcoin on their platforms, a major coup for the digital currency. With such massive institutional support, it’s no surprise that Bitcoin has been doing so well, barring a few hiccups along the way.
The trajectory for cryptocurrency is generally upwards. In fact, the rally is so ubiquitous that it is having a net effect on Ethereum (CCC:ETH-USD), Litecoin (CCC:LTC-USD) and XLM. However, what’s important to note is that this relationship goes both ways. Any adverse news regarding Bitcoin has a massive impact on these other coins. That places a huge question mark on the stability of these coins themselves. XLM has already pulled back substantially this year. A recovery to 60 cents seems unlikely at this stage.
Better to Sit This One Out
Stellar Lumens is definitely an interesting play that is upending the traditional payment industry. Geographical borders do not bind it, and transaction fees are fixed at $0.00001 XLM. The prospect of an inclusive financial system makes XLM very attractive. The Stellar network does not discriminate against disadvantaged individuals. It paves the way for a radically modernized payment infrastructure for people who do not have access to financial services. It provides stability for both currency exchange and transfer services in countries like Venezuela, suffering from hyperinflation, power cuts, and high levels of debt.
However, Stellar Lumens’ lack of institutional support will keep investors at bay for now. Any rally will likely depend on Bitcoin. Amidst the border crypto rally, XLM can push higher, but the short-term technical view is bearish. Best to stay away at this stage. If you want to play this crypto rally, Bitcoin remains a far more attractive option.
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.