Invariably, the topic of cryptocurrencies almost always revolves around its speculative value. That’s for good reason considering the rocket ship ride that is Bitcoin (CCC:BTC-USD). Six months ago, BTC was trading hands just above $11,000. Today, it’s just over $37,000. However, if you really want upside potential, you should consider Stellar Lumens (CCC:XLM-USD), the digital token of the Stellar blockchain network.
Over the trailing half-year period, XLM has a similar performance to Bitcoin, up around 260%. While some might find that disappointing given the explosive gains of Stellar Lumens in years past, that it tracked the Bitcoin price also tells you something about the broader virtual currency market: this isn’t just about a few blockchain tokens moving higher but the entire arena.
Still, let’s set aside the technical momentum of Stellar Lumens for a moment. Underlining the XLM token is the Stellar network, a platform designed to extract lightning fast and efficient payment protocols. Obviously, as the world becomes further interconnected, demand for next-generation payment services will only increase.
Additionally, cryptocurrencies like Stellar Lumens provide a natural proving ground for microtransactions, an especially important topic concerning the buildout of emerging and frontier markets in Asia and Africa. Having payment systems pegged to the U.S. dollar, while beneficial for Americans, places a burden on many other countries.
However, the fundamental narrative for Stellar Lumens doesn’t have to be so serious. For instance, microtransactions abound in the video game sector, particularly with the rise of downloadable content and in-game transactions. While I’m not aware of any gaming relationships with the Stellar network, the main takeaway is that the potential to impact industries both significant and personal represents a potential goldmine.
But who are we kidding? While the above points are relevant to the stellar lumens story, arguably most people are interested in gambling on XLM. As far as speculation goes, I don’t think it’s a bad bet.
Broadening Crypto Ecosystem Bodes Well for Stellar Lumens
First, let me back up with a very necessary caveat: I own Stellar Lumens. In fact, XLM might be the token that I most frequently purchase. My only regret is that I didn’t purchase more. So please know that I’m excruciatingly biased and that I stand to benefit from you purchasing the token today.
Second, all cryptocurrencies are speculative. Unlike other investments like blue-chip stocks, I occasionally wonder about the foundation of virtual currencies. At any moment, the façade can burst, causing catastrophic losses. Stellar Lumens, or any crypto, is not for the faint of heart.
However, if you can handle the wildness of this market, I strongly believe that the present circumstances can bolster XLM. As you know, social media platform Reddit has turned Wall Street upside down, attacking overleveraged short positions with a fervor that almost seems coordinated.
By the way, I don’t feel bad for the hedge funds. They decided to be aggressive (unreasonably so in some cases) and they got burned. It happens.
But now that the early bird Reddit folks have made massive profits, I’m sure their eyes will turn to cryptocurrencies. Indeed, this has already happened with Dogecoin (CCC:DOGE-USD), a cryptocurrency that began as a joke. Psychologically, Bitcoin with its $37,000 price tag might not appeal to this crowd. However, with XLM trading around 34 cents, it makes more sense.
As newbie investors start piling into virtual currencies, they’ll eventually recognize that the sector has built its own unique ecosystem. For instance, many cryptocurrency platforms allow you to make passive income from your holdings.
And we’re not talking BS figures either. Bitcoin holders can earn interest payments of around 4% annually. I’ve seen some crypto coins that pay out 12% annually. Think about that, 12%!
No doubt, an asset that accrues that kind of passive income is not something you want to base your life savings around. However, if stability were no issue, earning 12% consistently would easily beat the stock market average.
XLM’s Competitor Goes Down
As you’ve likely heard, Ripple Labs and its blockchain token Ripple (CCC:XRP-USD) caught some serious heat from the Securities and Exchange Commission. To make a long story short, the SEC claims that the XRP token represents a backhanded way of sidestepping laws regarding initial public offerings. Ripple is defending itself by claiming that XRP is a cryptocurrency, nothing more.
This will be an interesting legal battle to follow. Unfortunately for Ripple, it didn’t do itself any favors when it introduced XRP as a centralized token. That implies managerial control, which is the antithesis of why virtual currencies even exist.
But the fiasco cynically helps Stellar Lumens. They’re both roughly competing in the same general space of advancing next-generation payment processing and microtransaction services. With one down sentiment wise, that leaves more attention to be paid to XLM.
On the date of publication, Josh Enomoto held a long position in XLM, BTC, DOGE, and XRP.
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.