Based purely on its fundamental merits, the blockchain network undergirding Stellar (CCC:XLM-USD) seemingly represents a no-brainer investment. Among all the sectors that technology has transformed, the broader financial segment is a curious laggard. Yet innovation alone is not going to lift XLM-USD, particularly when all options to choose from appear painfully indistinguishable.
On surface level, Stellar proposes a groundbreaking solution to the wire transfer industry. According to Grand View Research, the global digital remittance market reached a valuation of $16.28 billion in 2020. By 2028, revenue for this segment could hit nearly $42.5 billion.
Of course, there’s one major headwind stymieing progress: traditional money transfer options are expensive.
According to data from NerdWallet.com, the average wire transfer fees for outbound domestic transactions is $25. For international transfers, average fees jump to $49. Even by western or developed-nation standards, that’s quite a bit of money. But imagine the onerous nature of these costs when citizens of developing nations want to transfer funds abroad.
That’s the beauty of Stellar. As its official project page states, Stellar is an “open network for storing and moving money,” one that is borderless, limitless and powerful. The network gives no credence to the color of one’s passport. Instead, it speaks the language of the internet.
In addition, an underappreciated catalyst of Stellar is the 24/7/365 nature of the blockchain. Because the XLM network is borderless, it’s also cultureless as well. Therefore, it doesn’t care whether it’s Independence Day or Christmas or what have you. If you want to transfer funds, you just need internet access.
Contrast that to traditional wire transfers, where the scheduling of transfers must align with normal banking hours (which can be incredibly inconvenient). Stellar does away with so much of the troubles, bolstering the case for XLM.
Competition May Come Calling for Stellar
Although the paper argument is indeed an exciting one, I’m not entirely sure that you should acquire Stellar coins based on its frictionless money transfer network. It comes down to what I believe is marketing sleight of hand.
On its website, XLM developers state the following: “Stellar makes it possible to create, send, and trade digital representations of all forms of money: dollars, pesos, bitcoin, pretty much anything. It’s designed so all the world’s financial systems can work together on a single network.”
I didn’t catch this before but the XLM team doesn’t state that Stellar makes it possible to send all forms of money. Rather, it states that it sends digital representations of all forms of money. That’s a big difference because it begs the question: what is a representation?
To really make use of the Stellar network, you can’t just send dollars through the blockchain. Instead, you must first convert dollars to XLM coins, then send to your destination. But the conversion process is where things get dicey.
For instance, in a 24-hour cycle, it’s very possible to gain or lose 8% or greater. It just happened recently between Aug. 16 and Aug. 17. So imagine sending $1,000 worth of XLM to your buddy in Timbuktu. If your friend is on the wrong end of a volatile session, the swing of 8% would be $80 or more than 63% higher cost than the average international wire transfer.
In that case, it’s much better to go through established money transfer channels. It also means that Stellar is vulnerable to competition. As other platforms become popular, the XLM network could fade into the background. If so, a loss of participants would make XLM coins more volatile, similar to low-volume sessions in the pink sheets (i.e., penny stocks).
Bet on the Greater Fool Theory
As I write this, Stellar holds the No. 20 slot for market capitalization. When my InvestorPlace colleague Ian Bezek wrote about XLM back in January of this year, it ranked in ninth place. I’m sorry but that’s quite a drop.
To me, it signals that if you’re going to gamble on XLM, you should do so based on anything other than the money transfer narrative. Personally, I find the greater fool theory attractive. Why not? Cryptocurrencies are hot and Stellar has an intriguing story to tell.
But if I’m being painfully honest, the story doesn’t deviate that much from what other blockchain projects are doing. Further, the wave of consolidation that’s occurring in this sector is a distraction for XLM. We’re going to see much more robust platforms that have better stories to tell. Therefore, you should gamble accordingly.
On the date of publication, Josh Enomoto held a LONG position in XLM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.