The last time I weighed in on Stellar Lumens (CCC:XLM-USD), I said, “Before you run out and empty your life savings into cryptocurrencies, be cautious. Many of these digital currencies are wildly overextended, including XLM … Don’t buy it just yet. Wait for it to pull back first.”
That was on Feb. 12, as XLM traded around 46 cents. By March 25, it fell to 35 cents. Then it popped to 74 cents before dropping to today’s price of 42 cents.
Thank China and Elon Musk for the chaos.
Musk, for example, said he would no longer accept Bitcoin for Tesla auto purchases, citing “rapidly increasing use of fossil fuels for Bitcoin mining,” as quoted by CNBC. China then made things a bit more “fun” by banning institutions from cryptocurrency trading. Apparently, they’re concerned about potential fraud and money laundering.
However, don’t count out oversold cryptocurrencies like XLM just yet.
The a Difference Between Stellar and Lumens
Stellar refers to the network and community. XLM is the currency that powers that network, which, according to Blockchain.com, “users can send and receive, and use to carry out exchanges between other currencies.”
While most of you know this already, it’s always best to clarify.
Stellar Lumens Technology Could Help Billions Considered Unbanked
Stellar’s market could be substantial.
For one, Stellar “makes it possible for people to create, send and trade digital forms of money … All designed so all the world’s financial systems can work together on a single network,” as I noted on Feb. 12. “Typically, it’ll take a bank days to process large transactions, with high transaction fees. However, with Stellar, the same tasks can be performed almost immediately at lower cost. It also allows for cross-border transactions between any currency.”
Two, Stellar could be a game-changer for the estimated one billion households considered unbanked. That means they don’t have access to traditional banking. They can’t get credit cards, wire money or even have an account.
Stellar Lumens Could Make a Stellar Comeback
After finding support dating back to February, XLM has become wildly oversold.
If you look at a two-year chart, you can see how oversold it is just by looking at relative strength (RSI), MACD, and Williams %R. In fact, take a look at what happens each time these three technical indicators align in oversold and overbought territory. About 80% of the time, we’ll see a pivot in the other direction shortly after.
Institutional interest appears to be growing with XLM, too. According to Crypto Briefing contributor Ali Martinez in April, “Grayscale has gone on a buying spree, adding more upward pressure to the cross-border remittances token. The world’s largest cryptocurrency asset management firm has raked 5,566,271 XLM over the past month, worth roughly $2.5 million.”
The Bottom Line on XLM
While cryptocurrencies have become wildly volatile thanks to China and Elon Musk, we’ll see a good recovery from recent lows. Plus, not only are we still seeing retail and institutional interest, we’re also seeing a good deal of global adoption of cryptocurrencies.
For example, according to FX Empire, “JPMorgan, Goldman Sachs, and Morgan Stanley are already heavily involved in the market. Other leading banks looking to venture into the market include Citigroup, UBS, Cowen, and Deutsche Bank. BNY Mellon is set to offer cryptocurrency custody services to its clients via its new digital asset unit in Dublin.”
With cryptocurrencies just beginning to bounce back, I strongly believe XLM could be one of the standout winners. It doesn’t hurt that XLM is also excessively oversold and ready to pivot higher. Near-term, I’d like to see XLM back to 75 cents from a current price of 42 cents.
On the date of publication, Ian Cooper 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.
Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999.
