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Stellar Lumens Has an Interesting Story That Is Getting Tied in With Bitcoin

Stellar Lumens (CCC:XLM-USD) has taken investors on a wild ride for the better part of 2021. Since starting the year at around 12 cents, XLM has climbed as high as 70 cents a coin. And it currently trades around 27 cents a coin. Which means if you bought at the beginning of the year, you’ve still doubled your investment. 

A concept coin for Stellar Lumens (XLM).
Source: Shutterstock

And as of this writing, XLM is the fifth largest cryptocurrency by market capitalization according to Coinbase (NASDAQ:COIN). So, you’re not alone.  

As I’ve stated before, XLM like Ripple (CCC:XRP-USD) has a compelling use case. In fact, it has the potential to be very disruptive. And if the Stellar Development Foundation continues to add customers, it’s not hard to imagine XLM climbing in value. And it won’t take that much of a move to reward investors.   

Another feather in the cap of Stellar Lumens is that the supply of lumens is established and will not change. Over time, investors can expect this to boost the price of XLM.  

However with so much going for it, investors should expect XLM to behave in a more predictable manner. But right now, the altcoin retains a high correlation with Bitcoin (CCC:BTC-USD) that is hard to overlook. 

With that in mind, let’s take a closer look at the opportunity that exists in Stellar Lumens. 

Stellar Lumens Is Playing Nice 

The appeal of cryptocurrency is the idea that investors have access to a decentralized currency. This doesn’t just mean being an alternative to fiat currency. It also means operating apart from central banks and other traditional banking institutions. 

Stellar is taking a distinctly different approach. It is actively looking to partner with central banks. Of course, this is self-serving to a point. After all, 80% of central banks are engaged in work to create central bank digital currencies (CBDCs).  

In January, Stellar signed an agreement with the Ukrainian government to assist in the development of the infrastructure for what will be a national digital currency. And there is some discussion that other central banks will look to use the Stellar blockchain to host their CBDCs. 

The implication for XLM is clear. Every transaction on the Stellar network, whether conducted in XLM or not, requires a fee to be paid in lumens.  

And with there being a fixed quantity of XLM with no plans to create more, it’s likely that the cryptocurrency will climb in value.  

What’s the End Game? 

But while that makes for a compelling case to buy XLM in the short- to medium-term, it’s less clear what it means for the long-term future of the lumen.  After all, you don’t get to be the rebel by cozying up to the establishment.  

But what may be a larger concern is that the currency already has a serious challenger in Ripple. And there’s no guarantee that corporations or other central banks won’t use their own blockchain. That’s one reason that the Stellar Development Foundation, the body that oversees and supports the growth of the Stellar blockchain, authorized the burning of a large quantity of the lumen in 2020 to support the organization’s marketing efforts.   

XLM Must Shed Its Correlation With Bitcoin 

Stellar Lumens is not Bitcoin. But it correlates closely with Bitcoin. Does this mean that investors don’t understand how the two cryptocurrencies are different? Or that they know but simply don’t care.  

Either way, many analysts are telling investors that the volatility shouldn’t steer them away from XLM. I look at it the opposite way. At some point, if these altcoins want to stand apart from Bitcoin, they need to behave in a more predictable way. Right now, XLM is behaving a lot like Bitcoin.

Until that changes, the case for Stellar Lumens looks weaker to me. 

On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. 

Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019. 

Article printed from InvestorPlace Media, https://investorplace.com/2021/06/stellar-lumens-has-interesting-story-that-is-too-correlated-with-bitcoin/.

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