Stellar Lumens (CCC:XLM-USD), like many other cryptocurrencies, has been making headlines so far in the new year. XLM started this year around 12 cents. As I write, it is hovering around 41 cents. Put another way, the proverbial $1,000 invested in Stellar Lumens at the start of 2021 would now be worth more than $3,400.
The Stellar network, launched in 2015, is a blockchain-based payment protocol. It is mainly used by individuals and institutions for cross-border transactions.
Global transactions have been on the rise. For instance, PayPal (NASDAQ:PYPL) points out global e-commerce means over $300 billion a year is spent across borders.
Jed McCaleb, co-founder of Ripple (CCC:XRP-USD) started Stellar as an altcoin alternative to XRP. On a side note, many InvestorPlace.com readers may recall that in December 2020, the SEC charged two Ripple executives, Christian Larsen and Bradley Garlinghouse, alleging that between 2013 and 2020 they fraudulently sold $1.3 billion of XRP in unregistered sales. At present, Ripple is fighting these allegations.
Professor David Mazières of Stanford University, California, has been part of the creative process behind Stellar Lumens. The group describes itself as “an open network for storing and moving money.”
The price of XLM and any crypto will depend heavily on how cryptocurrencies do as a whole. If there were a similar pullback to that of 2017/18, Bitcoin (CCC:BTC-USD) and many altcoins would likely see a sharp decline in price.
On the other hand, if crypto can hold its strength and continue to make a mark in the financial world, the growth of XLM could continue in the future.
A Closer Look at XLM
Stellar Lumens is one of the crypto coins that stayed around, along with the likes of Bitcoin and Ethereum (CCC:ETH-USD), after the 2017 crypto decline. Valued at over $9 billion, XLM is now one of the top cryptocurrencies by market capitalization. Bitcoin, Ethereum and Ripple have market caps of $901 billion, $180 billion, and $21 billion, respectively.
International Business Machines (NYSE:IBM) and Franklin Templeton, whose parent company is Franklin Resources (NYSE:BEN), are among the businesses that use the Stellar network for cross-border transactions.
Low-cost and fast transfers are getting noticed by corporations. The increased level of adoption of the Stellar Lumens blockchain has been providing tailwinds for the price of XLM. The trend is likely to continue in the coming months.
What makes Stellar different from a group such as Ripple is the customer target. Ripple works with established banking institutions, whereas Stellar focuses on individuals and developing markets. In other words, XLM is more popular for peer-to-peer transactions.
Various partnerships with banks across the world allow individuals to make good use of the platform’s services. Some of these include money remittances and bank loans to those without access to banks. According to the World Bank, around 1.7 billion individuals do not have access to a bank account.
Its transaction cost is also very low. Regardless of the size of a given remittance, each transaction costs just 0.00001 XLM. On the other hand, McKinsey highlights, “estimated revenue per cross-border transaction remains healthy at more than $20.”
The cost differential is wide. Believers in Stellar Lumens think the altcoin has the potential to disrupt cross-border financial payments.
The Bottom Line on Stellar Lumens
Cryptocurrencies have become the buzzword for high risk/high return assets in the past year. Unlike other blockchains, XLM is not mined or awarded over time. Instead, 100 billion lumens were created when it went live on crypto exchanges for the first five years or so since Stellar’s creation. The supply of XLM also increased roughly 1% annually.
The supply of new Stellar Lumens being created stopped permanently in 2019. Cutting the creation of XLM could become a significant catalyst for the cryptocurrency as the demand will likely keep growing while supply stays the same, similar to the case of BTC.
XLM has had lots of bullish news recently. The primary use for XLM is settling cross-border transactions for both individuals and financial institutions. Unbanked individuals are a primary consumer group for Stellar Lumens.
Stellar has also partnered with IBM, which has helped XLM gain considerable acceptance as a global remittance network within the blockchain space.
Similar partnerships will give confidence to investors that this platform will continue to grow and develop. Therefore, long-term investors who can handle short-term volatility could consider buying the dips.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
