The crypto boom appears to be in full swing. Investors in altcoins such as Stellar Lumens (CCC:XLM-USD) have seen impressive price appreciation of late. Indeed, Stellar Lumens has been better than a 10-bagger over the past year, tracking the rise of Bitcoin (CCC:BTC-USD) with a high degree of correlation.
This high level of correlation suggests to some crypto investors that the entire sector is likely to be tethered together via capital inflows or outflows over time. Indeed, a diversified approach to crypto makes sense. You can’t blame a guy for spreading his bets.
However, there are some key differences between Bitcoin and its alt coin peers. Thinking of Stellar Lumens as another “Bitcoin light” misses the unique properties that make this altcoin intriguing.
Let’s dive into what XLM and Stellar Lumens offers investors that Bitcoin doesn’t, and why investors might be interested in this alt coin.
What’s Different About Stellar Lumens?
The back story on Stellar Lumens is an interesting one. The cryptocurrency was developed via the same co-founder, Jed McCaleb, behind Ripple (CCC:XRP-USD). Initially, both tokens shared the same protocol, and were considered very similar to each other.
Not much has changed on that front. Both digital coins were developed for real-world use cases. Both coins focus on making cross-border payments frictionless. However, a key differentiating factor between Ripple and Stellar Lumens is that the latter focuses on SMBs (small and medium businesses) and individuals, while Ripple is more heavily focused on institutional clientele.
I’m actually quite bullish on both Ripple and Stellar Lumens due to the real-world applications these cryptocurrencies provide. There’s real value being created in using these cryptocurrencies as an alternative to traditional currency. The same case is much more difficult to make for most of the altcoins in existence today.
However, another key differentiating factor is that Stellar Lumens is not in the SEC’s spotlight, yet. Let’s dive into that a bit.
As With all Crypto Options, Stellar Lumens Isn’t Without Risk
Ripple has been entangled in an SEC investigation surrounding a $1.3 billion unregistered securities offering. Essentially, the SEC is trying to make the case that XRP is a security, and has issued XRP without complying “with the federal securities laws that require registration of offerings unless an exemption from registration applies.”
Investors in Stellar Lumens have to contend with knowing XLM could be the next batter up for the SEC.
While Ripple’s future remains uncertain, it appears investors are bearish on this development for two key reasons. First, the SEC’s track record in prosecuting these cases is near lights-out. Second, the fines and penalties imposed by the SEC could be well in excess of what Ripple is able to pay to settle the dispute.
The same applies to XLM, and a number of early investors have already jumped ship accordingly. As mentioned previously, capital flows are an essential driver of the continued rise in the value of the cryptocurrency ecosystem. If more investors choose to follow a similar path, both XRP and XLM could have more significant downside potential than their peers.
Stellar Lumens is an interesting option for crypto investors seeking a viable reason to own a particular cryptocurrency today. Along with Ripple, Stellar Lumens is a top pick of mine in the crypto space today.
Those looking to put some hard-earned money to work in either option today should do so cautiously. In my view, these digital tokens are still highly speculative in nature. The unique litigation risks of both XRP and XLM provide an additional layer of uncertainty for investors. Practicing proper portfolio discipline and prudent portfolio sizing is very important for any long-term investor. This goes double for very risky assets such as cryptocurrencies today.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.