Making the right investment in cryptocurrencies is not like investing in other markets. The two clearest things, for those who have just begun investing and are observing how the market works, are that it is EXTREMELY volatile and that many of the startups are so early in their development cycle, that it is hard to ascertain the long term value and/or probability of success of said projects.
Being unable to determine whether a project will exist in the long run, let alone succeed in its vision, can put investors off of investing. This is assuming that a majority of investors are in it for the long haul - HODLing is the market’s preferred term here - and are not wishing to make money off day-trading, a risky proposition to begin with, and exponentially more or so in the crypto market.
Day trading, in a market that is open 24/7, is either for the extremely knowledgeable or extremely foolish in this space. I will not dive into the day trading possibilities of cryptocurrencies, that goes against the true investment value of cryptocurrencies, at least those that matter most (long term potential and impact).
I am going to look at Stellar Lumens (XLM), a very well known cryptocurrency that should be recognizable by even the greenest of investors. Among other arguments, I will look at why one should consider investing in it and how high a return one could possibly obtain from investing in it.
Stellar Lumens is a top 10 cryptocurrency (by market cap) which actually makes investment analysis tougher than, say, an altcoin outside the top 20. While this may appear counterintuitive, it is in fact quite obvious: the top 10 cryptocurrencies are almost guaranteed to grow and succeed, as compared to these smaller cap altcoins - so you know that most altcoins are likely to fail.
However, with these larger cap tokens, the trouble here is that one must choose between what are close competitors - does one invest in Bitcoin (BTC), Ripple or Stellar, all of whom roughly operate with the same use case? (I say roughly.) So when budgeting one’s portfolio, one must make some tough decisions, determining how much to invest in each of these tokens.
But the details of investment will be left up to you - the first question is the respective token a good investment?
The long and short of it is that, yes, Stellar Lumens (XLM) looks like it is a good investment. As for why, keep reading.
What is Stellar Lumens (XLM)?
I won’t go into detail about what Stellar Lumens is all about, but it does help our case to go over, in brief, about what Stellar Lumens is and what its purpose is, if only to offer some contrast to other tokens that perform the same function.
Stellar was co-founded by Jared McCaleb, the same person who created Ripple and the XRP token. Stellar shares the same purpose as Bitcoin and XRP in that, it aims to be a cryptocurrency that aims to be used by millions of people in the world as a means of exchange and also as a means of facilitating better cross-border payments for larger entities.
XRP and XLM are often compared, but their respective purposes only have a skin-deep similarity. Ripple is almost entirely focused on improving the international banking system, while Stellar aims at bringing the “unbanked” into the global economy by giving them an account that transcends border restrictions, among other things. That said, Stellar does have solutions aimed at financial institutions - and even in the content space.
This is known to be the most common application of cryptocurrencies, facilitating quick, cheap and unencumbered transactions that avoid any of the pitfalls of the current system.
Broadly speaking, we can see how Stellar, XRP and Bitcoin operate in the same space. Even with the claimed advantages over its competitors that Stellar possesses, it faces some resistance in nabbing market share.
What Sets it Apart from its Competitors
Having said this, is there something that distinguishes Stellar from other tokens and gives it a decent enough profitability potential? Can it mark enough territory in the global payments space that it can be considered a worthwhile investment?
Primarily, and this is what the Stellar team emphasizes, it is a much more efficient choice of payment that Bitcoin: both transaction fees and times on the Stellar network are negligible. While Bitcoin’s developers are working on fixing this problem for Bitcoin, as it stands, Stellar is the winner in this regard.
A particularly significant feature of the Stellar network is that it allows any asset to be issued and have a corresponding token representation - a feature that greatly expands the possibilities with the network. This includes fiat currencies represented by stablecoins, something Stellar is already working on. These tokens are interoperable, which gives the network a lot of potential in terms of utility.
There are some technical aspects to the project which distinguish Stellar from its competitors, which I think is worth describing.
The Building Blocks of Stellar
Stellar’s fundamental applications can be categorized into 3 aspects, which the Stellar Foundation calls Asset Issuance, Decentralized Trading and Open Participation.
Asset Issuance, as touched upon before, allows users to create tokens that are redeemable for any asset, including fiat currencies, cryptocurrencies or “a bushel of corn,'' as they put it. What this lets network participants do is create their markets within the Stellar network which can utilize its advantages to create strong economies designed for specific purposes. It can also be customized such that KYC requirements can be demanded for these tokens.
The team describes this as one of Stellar’s strongest features and rightfully so. Imagine being able to digitize to digitize traditional assets like stocks and bonds. The Stellar Network is ideal for the launch of security offerings and indeed some talk is already being had about this.
Decentralized trading and open participation, governance in other words, are both fairly straightforward: Stellar offers decentralized trading solutions and an open, democratic network.
From a developer’s and investor’s perspective, Stellar offers a few different things of note: a decentralized exchange (DEX) called StellarX, the Stellar Laboratory for “complex transactions”, an open source trading bot feature called Kelp, besides explorers. Stellar’s Horizon API also lets developers build applications on top of the Stellar Network, so it could also become a Decentralized Finance (DeFI) powerhouse.
Currently, Stellar offers two major products: one through its IBM World Wire, which is designed for financial institutions, and the other being SatoshiPay, which is used a tipping service for content creators.
The Challenges that it Faces
That should make Stellar the obvious choice for payments, correct? Then why isn’t it the case? For one thing, money has a great psychological factor behind it. The US Dollar’s strength doesn’t only stem from the strength of the country’s economy, but also from the symbolic strength of it. Bitcoin possesses this symbolic strength in droves. Bitcoin is a household name, and no other cryptocurrency is. The first mover advantage of Bitcoin is immeasurable.
But it would be unfair to say that Stellar won’t be able to become a go-to payments token simply because of that. Nonetheless, all other factors being equal, Bitcoin can be envisioned as the “dollar.” Perhaps not, if Stellar’s many features helps enhance the adoption and growth of XLM.
Stellar has generally performed well in the market, its peak being $0.86 during the boom of late 2017. Prior to that, it was at $0.17 - a five fold jump in price when the floodgates had opened and many new investors joined the network. Assuming that the market reaches those heights again (and it will reach comparable heights, of course), one can assume that it will past that all-time high as more users join the network and more applications are developed.
How Far Can it Go?
While we all might agree that Stellar can find its place in the market, how large of a place can that be? If one were to see the price predictions for the long term, they vary greatly with some even going with the absurd amount of $10 - 20. More moderate estimates vary from $1 - 3. That’s still quite a ROI.
We’re essentially asking that over-asked question that is popular on cryptocurrency social media channels: when moon? This is the cryptocurrency market and specific price points are impossible to predict. Perhaps a more general estimate on the market cap and adoption growth will be better points to address.
Stellar’s additional features that make it more than just another payments token is the real selling point of the token. If it can integrate these services to create a solid ecosystem, it’s absolutely certain that it can reach great prices.
It is hard not to recommend Stellar Lumens for investment. If you’re simply looking for a profit, then Stellar Lumens is almost certain to offer you one. How much of profit is open to debate, but that is the case with all tokens. There are very few tokens out there that for which one can say that a profit is likely, and Stellar is one of them.
Stellar certainly is a good investment. The development and business strategy of the project is solid. It has already formed some solid partnerships and is making inroads with its applications. Perhaps you would like to make as much of a profit as possible - in that case Bitcoin is probably the best option. However, if you’d like to diversify your portfolio, then Stellar is a more than suitable inclusion.