Breaking Down Stellar Coin’s Pros and Cons

Cryptocurrencies have roared back to life. After a difficult 2019 and an uneven pandemic year, Bitcoin (CCC:BTC) has exploded in recent weeks. Leading altcoins are surging as well. But not all of them are coming along for the ride. Where does the Stellar coin (CCC:XLM) fit into this mix?

Stellar Lumens has been a bit of a mixed bag. Its price has soared in recent weeks. However, it’s never come close to reclaiming its old highs back in the previous bitcoin run-up. Some analysts have lofty price targets for the coin. But others fear that Stellar’s position in the crypto ecosystem may not be that firm.

Stellar Coin’s Unique Appeal

There’s a ton of different cryptocurrencies out there. So what makes the Stellar coin stand out? It aims to serve as a universal medium of exchange. And universal isn’t hyperbole. The project’s official website states that:

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Stellar makes it possible to create, send, and trade digital representations of all forms of money: dollars, pesos, bitcoin, pretty much anything. It’s designed so all the world’s financial systems can work together on a single network.

Stellar aims to disrupt traditional banks and payment networks. In its grand vision, Stellar will allow ordinary coders and website developers to put robust currency exchanging and trading systems into their sites and apps. This would offer obvious appeal compared to the limits of traditional payments systems and the high costs of the regular banking network.

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Additionally, Stellar’s decentralization is a plus. Particularly in light of recent events, with high-profile politicians and activists losing access to their banking relationships, some people are looking to find alternate means of processing payments. A solution built on Stellar could be outside the reach of traditional large banking and tech companies.

Is Stellar’s Plan Working?

As of this writing, Stellar currently has the ninth-largest market capitalization of all cryptocurrencies. That makes a considerable success, to be certain. However, it has been around a long time, and failed to gain additional value versus bitcoin or Ethereum (CCC:ETH). In fact, when measured against bitcoin, Stellar coin has lost roughly 80% of its value since its peak back in 2018.

Some of this may be due to structural issues. One analyst suggested a mixed outlook for Stellar. The project is well-funded and has the human resources necessary to succeed. However, the analyst notes that relatively few outside developers want to work on Stellar. Additionally, in their view, DeFi and Ethereum 2.0 pose competitive threats to the long-run success of Stellar coin.

Many cryptocurrencies are rising now thanks to the surge in the price of bitcoin. However, over the long-haul, it will be an individual coin’s fundamentals that determines whether it finds market success or not. So far, indications on Stellar appear to be mixed.

Stellar Coin Verdict

Back at the end of 2017, the price of Stellar coin exploded to more than 80 cents for a brief moment. In 2018, however, Stellar dropped back to the 20-30-cent range. The following year, it tumbled again, falling to just 4 cents each at one point.

In light of that backstory, Stellar’s current situation is a glass half-full situation. The current price of around 30 cents is certainly a massive recovery from the lows. You don’t get that sort of move without substantial trader confidence in the name. Still, in a world where bitcoin more than doubled its previous all-time high, it’s a bit disconcerting that Stellar is still down more than 50% from its previous peak.

That’s not to say that the project is doomed by any means. However, adoption clearly hasn’t been that fast. Stellar’s price recently spiked 40% in conjunction with announcing a plan to work with Ukraine on digital asset infrastructure. You know you aren’t quite at the prime time if a deal of that nature causes such as move in the share price. By comparison, if Visa (NYSE:V) or PayPal (NASDAQ:PYPL) announced a similar deal, the market should shrug.

Perhaps Stellar will eventually become a broad global payments platform and earn its place as a major rival to traditional banks and credit card companies. Or perhaps Stellar coin is primarily rising simply because bitcoin has surged. Trading is sure to remain volatile in the near-term, that’s for certain.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.