As a fundamental fintech innovation, it’s hard not get excited about Stellar Lumens (CCC:XLM-USD) and its underlying blockchain technology. While we have increasingly become a digitalization-of-everything economy, our payment processing solutions remain curiously archaic. Stellar offers a viable alternative but does that necessarily bode well for its XLM cryptocurrency token?
I’m going to dive into the nuances of this question. But first, I believe the integration of the Stellar Lumens blockchain technology into mainstream financial institutions should be encouraged. And at some point, you’d figure that this staid industry will be forced to accept that we live in the 21st century.
Recently, I had the displeasure of having to make a wire transfer to another U.S.-based bank. The cost to me was $25 to make the transfer. Additionally, the time it took for the wire transfer to process, along with associated filings was about one week – that’s an eternity in our supposedly advanced society.
On the flipside, cryptocurrency transactions occur much quicker and cheaper. Earlier this year, I made several Bitcoin (CCC:BTC-USD) transactions, with the process taking a few hours to complete and with transaction fees in the single-digit dollar range.
However, crypto proponents consider Bitcoin as the transactional laggard in this space. Other cryptocurrency transactions, such as through the Ethereum (CCC:ETH-USD) or Litecoin (CCC:LTC-USD) blockchains occur at lightning-fast speeds and with more modest fees.
And this is where Stellar Lumens truly shines. The platform is one of the fastest. Better yet, because of its low flat fees, Stellar opens the door to a viable micropayments economy. In turn, this will help bring the developing part of the world into the broader financial ecosystem.
Plus, we don’t even have to think so globally. According to the Federal Deposit Insurance Corporation, 5.4% or roughly 7.1 million households were unbanked in 2019. Due to the pandemic and the resultant economic crisis, this figure will surely increase.
Stellar Lumens, Like Everything, Is Becoming Questionable
Before I go any further into the investment proposition of Stellar Lumens, I need to make a comprehensive disclosure. Yes, I own XLM tokens, but the amount that I have now is a pittance compared to my prior holdings.
This doesn’t mean that I’m necessarily bearish on XLM. However, when the cryptocurrency market started going sour a little over a week ago, I began taking evasive action. I converted some of my XLM holdings into BTC and some into cold hard cash.
As I watch the Stellar Lumens token tumble downward – albeit with a few head fakes here and there – I’m regretting that I didn’t go all into cash. Oh well. If I’ve learned anything about cryptocurrencies over the years, you just never know where they might end up.
Except that I did know – at least, in my own mind. Aside from my own second guessing, the XLM price action looked weak following its trend collapse on Feb. 22 and Feb. 23. Subsequent trades have attempted to push the price back up toward 50 cents, but to no avail.
Can the Stellar Lumens token recover that support level and make its way toward all-time highs? Perhaps, but that will likely depend on Bitcoin. Unfortunately, from where I stand Bitcoin looks like a basket case. Gone is the moxie that took the original virtual currency to the edge of $60,000. Instead, BTC stakeholders should consider themselves fortunate if it doesn’t fall below $40,000.
Below $40K? Yeah, it can happen (though of course I’m not guaranteeing it) precisely for the same reason why the cryptocurrencies started skyrocketing earlier this year: big institutions are embracing this digital revolution. They’re wonderful to have when they’re driving up the asset. But if these alpha dogs decide to sell, the volatility could be unprecedented.
As Bitcoin reaches down and cuts into institutional profits, you can rest assured that they’ll dump like mad to preserve their wealth.
Taxes and Yields
Then, you also must factor in human concerns such as tax season and rising bond yields. For the former, Tax Day is approaching, which means profit taking may be in order to help ease the burden imposed by Uncle Sam.
But the latter case is the most intriguing one for me. The sudden rise in yields not only demonstrates that the incentive to hold risk-on assets is diminishing, it highlights that cryptocurrencies represent the riskiest asset class of them all. It doesn’t pay dividends and it has severe third-party risk in terms of government intervention and/or cyberattacks.
If the Russians can compromise our most secure assets, then a disruptive attack on the crypto ecosystem seems like child’s play.
For me, there seems to be too many questions to be comfortable wagering on Stellar Lumens right now. Personally, I’d wait until Bitcoin stabilizes. If not, a low-30-cent/high-20-cent price range wouldn’t be too surprising given the context.
On the date of publication, Josh Enomoto held a long position in XLM, BTC, ETH, LTC.
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.