Stellar Lumens Looks Like Good Value, Especially If It Matches Ripple’s Gains

Stellar Lumens (CCC:XLM-USD) is gaining popularity as a payments network. This is helping to fuel the rise of XLM cryptocurrency.

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

Stellar bottomed out on July 18 at 21.24 cents per XLM after peaking at 73 cents on May 10. As of Aug. 9, it was trading at 29.84 cents. So now it is up over 40% from its trough last month.

The reason for its popularity is fairly simple. Its goal is to ease global money transfers with its blockchain platform. It wants to reach the world’s “unbanked” to allow money to transit borders, connecting banks, payment systems, and individuals quickly and reliably.

Where This Leaves Stellar Lumens

News recently emerged that the Stellar Development Foundation approached Moneygram International (NASDAQ:MGI) about a potential acquisition of the company. As of Aug. 9, MGI stock had a market capitalization of $889 million. The Stellar Development Foundation is a non-profit company that supports the development of the Stellar Lumens blockchain and XLM tokens.

Bloomberg originally reported the story about MGI stock and Stellar on July 21. The foundation was reportedly working with Advent International, a Boston-based private equity firm, to help pay for the acquisition. So far, there has been no definitive agreement announced about a potential acquisition.

It is probably not too hard to understand the rationale for such a deal. Moneygram focuses on peer-to-peer payments in the U.S. and internationally. Having a blockchain option for people who want to transfer money with digital assets would promote Stellar Lumens and its XLM token.

If this were to happen, it would not be the first time that Moneygram  worked with a digital asset. In fact, Ripple (the company, not the XRP token) had taken a 10% stake in the company in November 2019 for $50 million, according to Decrypt.co online magazine.

In May, Moneygram began to offer its customers the ability to buy and sell Bitcoin (CCC:BTC-USD). It expects to allow Bitcoin trading in 20,000 stores across 32 states by the third quarter. It has a partnership with a company called Coinme that facilitates this. I suspect that the Stellar Development Foundation saw this and wanted to be able to inject its Stellar Lumens cryptocurrency as a payment option as well.

Where You Can Buy XLM Tokens

The popularity of the Stellar currency was boosted by Coinbase Global‘s (NASDAQ:COIN) early acceptance of the currency on its exchange platform in March 2019. Being on Coinbase grants it a sort of halo effect, and helps people believe that it is not fly-by-night crypto.

For example, Coinbase has a short write-up on the XLM token and the purpose of Stellar Lumens. In addition, it is also available to be bought on Binance, another major cryptocurrency exchange.

What to Do With Stellar Crypto

I suspect that there is a very high correlation effect with both Bitcoin. This is not uncommon with many smaller cryptocurrencies. For example, Stellar Lumens has a market capitalization now of $7.033 billion and is ranked as the 20th largest crypto by market cap.

So when Bitcoin recovers, as it has been from the April/May crypto crash, Stellar crypto began to move up with it. It probably doesn’t hurt that the Stellar Development Foundation is making a move on Moneygram International. That helps lend respect and credibility to the XLM cryptocurrency as a major digital asset that may be useful in money transfers.

I suspect that investors in the XLM crypto should do well over time. It also doesn’t hurt that the currency still trades well below $1.

Stellar Lumens Potential ROI

It is not out of the possibility that over a five-year period it could rise to $2.10, or about 7 times its present price. That would give it a market cap of just $49 billion, or about the same today as Cardano (CCC:ADA-USD) at $47 billion. The 7-fold gain over five years also implies an average annual compound return of 47.6% annually each year. That is a pretty good return for most crypto investors.

Maybe a more apt comparison would be if XLM rose to the same market cap as Ripple (CCC:XLM-USD). Jed McCaleb, the founder of Stellar Lumens, was also a co-founder of Ripple. Ripple has a market cap of $37.6 billion. If Stellar were to rise 5.37 times to the same market cap over five years, the average annual compounded return would be 40% annually. That is still a very good ROI.

On the date of publication, Mark R. Hake held a long position in Bitcoin (BTC-USD) and Ethereum (ETH-USD), but no other security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.


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