As of the morning of Dec. 17, one of the most popular articles on InvestorPlace is Will Ashworth’s take on SoFi Technologies (NASDAQ:SOFI). To make a long story short, he likes the discount that SOFI stock provides because of underlying social changes; mainly, growing discontent with big banks. Ashworth brought up cryptocurrencies and my mind turned to decentralized money transfer services like Stellar (CCC:XLM-USD).
I suppose Ashworth’s piece is somewhat awkward for me because, as part of a broad discussion on SOFI’s bullish narrative, he used my take on the fintech firm as a counterbalance. Among my arguments, I mentioned the Federal Reserve Bank of St. Louis, which stated that the effect on rising interest rates toward banking profits is ambiguous.
Be that as it may, Ashworth then stated that SoFi could meet the challenges of an uncertain 2022 (and beyond). “If nothing else, cryptocurrencies illustrate the level of discontent younger Americans have with traditional banks such as JPMorgan (NYSE:JPM) and Bank of America (NYSE:BAC),” my colleague wrote.
And you know what? That argument is spot on. Young people are indeed discontent with the traditional financial system. Therefore, it’s no wonder that cryptos like Stellar have soared to the moon.
Further, it’s not just about discontentment. Cryptos are inherently more convenient than traditional investments. I’ve long mentioned that one of the advantages of Stellar and its ilk is the ability to trade 24/7/365. Now, for those of you who live in the east coast, that might not sound like that big of a deal because the market aligns with the workday.
And with the new normal, you have many hours to conduct your trades.
But for west coast people, it’s a challenge. It remains so despite work-from-home initiatives since the market closes at 1 p.m. for us.
Discontentment and Convenience Are Not Sole Drivers for Stellar
These days, Russia is perhaps the biggest discontented party of them all. Just recently, the Washington Post reported that Moscow demanded the U.S. and NATO stay out of its sphere of influence. From what I’m hearing, Russian President Vladimir Putin is only amassing troops as a power play. Apparently, the Russians have no intention of starting a hot conflict.
While that might be true, it’s difficult to take our adversarial nations’ at their word. I get that global opinion of China dropping substantially – not entirely for unjustified reasons – has some circles warming to Russia under the thesis, the enemy of my enemy is my friend.
Over time, I believe the U.S. will discover that the enemy of my enemy is still my enemy.
Anyways, should Russia decide to escalate tensions in eastern Europe, the U.S. theoretically has at its disposal influence to help remove Russia from the SWIFT electronic-payment-messaging system. Setting aside the reaction from such a possible move, it does raise some intrigue for cryptos like Stellar.
One of the early use cases of cryptos was to provide a quicker alternative to the wire transfer mechanism. As anyone who’s used the traditional methodology of sending money knows, it’s cumbersome, inconvenient and expensive. With Stellar, one could send XLM coins through a decentralized network in lightning-quick fashion – and cheaply, too.
On the positive front, it opens the possibility of the democratization of finance, particularly via microtransactions. As well, stigmatized (again, not entirely for unjustified reasons) nations like Russia could use an XLM-like system to sidestep the U.S. dollar.
However, the currency would be decentralized, removing power from power-hungry folks like Putin. But removing the decentralization component would eliminate most of the conveniences associated with open-source blockchains.
The People Need Structure
Going back to Ashworth’s point, I appreciate the discontentment of the young – and a large contingent of folks – regarding big banks. My colleague stated that big banks are not your friend. That’s very true. But I will argue that decentralization is also not necessarily your friend.
Before you get out your pitchforks, decentralization is only a concept. It has no native moral attributes like friendship. Over time, when these young folks get older, they may realize what gives the U.S. dollar its true power: not gold, not monetary policy but the military industrial complex.
You play or you die.
And deep down, while we may complain about our politics, that U.S. passport of yours means that other people die when they mess with you. Secretly, we appreciate this structure, this insurance. Cryptos like Stellar – for better or for worse – lack that force. It’s whimsical. It can never bully its way to the front of the line like the greenback.
That leaves XLM – for all its glorious underlying innovations – at the mercy of market dynamics. With investors losing appetite for risk-on assets, it may be time to take a breather before figuring out next steps.
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.