With the top-tier cryptocurrencies moving into seemingly absurd valuations, the risk-reward profile should start favoring lower-priced, overlooked alternative cryptos like Stellar Lumens (CCC:XLM-USD). One of the more remarkable performers earlier this year, Stellar has been flying under the radar relative to the “in” assets.
Still, that’s the kind of dynamic you would be looking for as a contrarian. Granted, an established name like Bitcoin (CCC:BTC-USD) or Ethereum (CCC:ETH-USD) represent the safer play in terms of the crypto complex. Basically, they’re the blue chips of the blockchain market. You pay more to acquire each unit, but you can reasonably be assured that they’ll move higher in the long run.
However, in this craziness we call the capital markets, folks seem to be forgetting the lesson that valuations can’t keep rising indefinitely without a correction. You should be skeptical of permabull prognostications just as much you would be skeptical of someone selling you a perpetual motion machine. While they sound great on paper, they simply don’t exist on our side of reality.
Thus, as I’ve explained for my recent takes on speculative coins like Shiba Inu (CCC:SHIB-USD), as Bitcoin and others continue to soar, lower-priced altcoins become more attractive. While BTC might be the blue chip of cryptos, that doesn’t mean it’s a blue chip per se. Historically, it’s prone to ugly streaks of red ink when the market goes awry.
From that perspective, it makes better sense (at least to some contrarians) to put less money into something like Stellar and hope for big gains, as compared to putting big money for more reliable but ultimately smaller gains. That way, worse comes to worse, you’re losing thousands of dollars as opposed to tens of thousands.
Even better, it’s possible that Stellar can rise from here on out, but you better think of the implications first.
Stellar Lumens Gains Might Be a Clue to Wider Problems
Since the novel coronavirus pandemic temporarily capsized us, I wondered where the money for everyone to buy anything from stocks to cryptos to homes and cars came from. Remember, the narrative heading into the pandemic was that millennials weren’t investing, weren’t buying homes, weren’t achieving the milestones that their parents did.
Today, millennials have an average of $51,300 in personal savings (not including retirement). No wonder they’re able to buy Stellar Lumens and other cryptos at scale. But then, what happened to the poor millennial who couldn’t scrounge together $500 for a random emergency?
Despite asking the question to multiple people, I never received a direct satisfactory answer. The closest was a Wall Street Journal article, which detailed how most Americans got ahead during Covid-19. Citing data from the Federal Reserve, “U.S. households added $13.5 trillion in wealth last year.”
Imagine that, $13.5 trillion. As the WSJ reminded us, it’s the “biggest increase in records going back three decades.” Thus, it might be the biggest jump of all time. We just don’t have the statistics. Either way, it brings up an awkward inquiry: why, as the Pew Research Center pointed out, do so many countries have a negative view of China?
I mean, $13.5 trillion! Because we still have a massive homelessness crisis, we should ask China to concoct the Covid-22 crisis from its Wuhan lab, just so we can create more wealth.
Of course, I’m being facetious. I have to be because it seems too few people are asking the bigger question. And that is, what is the consequence of this explosion of cheap money and rampant speculation?
You see, Stellar could very well jump higher from here. But I think we’re getting to a point where any more increases in crypto valuations are cynical, not fundamental.
What Are Cryptos Trying to Tell Us?
In early January 2018, Stellar Lumens hit an all-time average daily high of 89.6 cents. At the same time, the S&P/Case-Shiller U.S. National Home Price index hit 198.2 points, up 45% from its February 2012 lows.
Today, as the XLM coin is flirting around the 40-cent level, the aforementioned home pricing index is at a record high of 267 points, almost 24% higher from just before the pandemic. In other words, during Stellar’s first major bull market, the underlying U.S. economy was in a relatively stable place. Today, the price of XLM may be elevated but the backdrop is that prices of goods are starting to spiral out of control.
To put it more bluntly, a higher Stellar Lumens price might not mean the same thing as it did a few years ago. That’s the ultimate worry about XLM and the broader crypto complex. The Fed might need to pop this asset bubble before it gets out of hand, which will likely have a negative impact on the digital ecosystem.
On the date of publication, Josh Enomoto held a LONG position in XLM, BTC and ETH. 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.