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The blockchain network is underpinned by its basic merits alone Stellar (CCC:XLM-USD) seems like an easy investment. Among all the sectors that technology has changed, the broader financial segment is an odd laggard. However, innovation alone won’t lift XLM-USD, especially when all of the options to choose from are painfully indistinguishable.
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On the surface, Stellar offers a breakthrough solution for the remittance industry. According to Grand View Research, the global digital remittance market reached a valuation of $ 16.28 billion in 2020. Revenue for this segment could reach nearly $ 42.5 billion by 2028.
Of course, there are major headwinds that hold back progress: traditional money transfer options are expensive.
According to data from NerdWallet.com, the average transfer fee for domestic outbound transactions is $ 25. For international transfers, the average fees increase to $ 49. That’s a lot of money even for western or industrialized nations. But imagine what those costs would be if citizens of developing countries wanted to send money abroad.
That’s the beauty of Stellar. As stated on the official project page, Stellar is an “open network for storing and moving money,” one that is limitless, limitless and powerful. The network does not give any faith in the color of the passport. Instead, it speaks the language of the internet.
Additionally, an underrated catalyst for Stellar is the 24/7/365 nature of the blockchain. Since the XLM network is limitless, it is also cultureless. Hence, it doesn’t matter if it’s Independence Day or Christmas or what you have. If you want to transfer money, all you need is internet access.
Compare this to traditional wire transfers, which have to schedule the transfers to match normal banking hours (which can be incredibly inconvenient). Stellar removes so many problems and strengthens the case for XLM.
Competition can, according to Stellar. call
While the paper argument is indeed exciting, I’m not entirely sure if you should purchase Stellar Coins because of its smooth money transfer network. It depends on what I think are marketing gimmicks.
On its website, the XLM developers state the following: “Stellar makes it possible to create, send and trade digital representations of all forms of money: dollars, pesos, bitcoin, pretty much anything. It is designed so that all of the world’s financial systems can work together in a single network. “
I didn’t get this before but the XLM team doesn’t say that Stellar makes it possible to send all kinds of money. Rather, it means that it sends digital representations of all forms of money. This is a big difference because the question arises: what is a representation?
To really take advantage of the Stellar network, you can’t just send dollars over the blockchain. Instead, you need to convert dollars to XLM coins first and then send them to your destination. But the conversion process is where things get tricky.
For example, on a 24 hour cycle, it is very possible to gain or lose 8% or more. It happened recently between August 16th and August 17th. Imagine sending $ 1,000 worth of XLM to your pal in Timbuktu. If your friend is on the wrong end of a volatile session, the 8% swing would cost $ 80 or more than 63% more than the average international transfer.
In this case, it is much better to go through established money transfer channels. It also means that Stellar faces competition. As other platforms gain popularity, the XLM network could take a back seat. If so, a loss of participants would make XLM coins more volatile, much like low volume sessions in the Pink Sheets (i.e. penny stocks).
Bet on the Greater Fool Theory
As of this writing, Stellar holds # 20 for market cap. When my InvestorPlace colleague Ian Bezek wrote about XLM in January of this year, it was ninth. I’m sorry, but that’s quite a drop.
To me, this means that if you want to play on XLM you should do so based on something other than the money transfer narrative. Personally, I find the bigger fool theory attractive. Why not? Cryptocurrencies are hot and Stellar has a fascinating story to tell.
But if I’m painfully honest, the story doesn’t differ that much from what other blockchain projects do. In addition, the wave of consolidation in this sector is a distraction for XLM. We’re going to see much more robust platforms that have better stories to tell. Therefore, you should play accordingly.
At the time of publication, Josh Enomoto held a LONG position in XLM. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s posting guidelines.
As a former senior business analyst for Sony Electronics, Josh helped Enomoto broker key contracts with Fortune Global 500 companies. Over the past several years, he has provided unique, critical insights into the investment markets as well as various other industries including law, construction management and healthcare.
Stellar has to fight hard to stay relevant in a sea of ”equality” first appeared on InvestorPlace.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.