A year in the life of Stellar (XLM)

April 10, 2018
Neil Dennis

It’s been a turbulent, often nerve-shattering year for cryptocurrency traders and although Stellar, with its worthy ambitions for global finance, tried to set itself apart from the mania, it’s fortunes have run parallel with its altcoin rivals.

Mostly.

Stellar’s logo for its lumen token

The ambitions of Stellar.org have had some influence on the lumen – the name of the cryptocurrency supported by the Stellar blockchain – and it is likely to be these ambitions that keep the company and its token currency in business after others fall.

Indeed, these are lofty ambitions. Jed McCaleb, co-founder and chief technical officer, set up Stellar in 2014 as a not for profit company after leaving Ripple. His vision is for the Stellar network to be as accessible as possible, free to use and for the benefit of all – particularly the unbanked people in remote areas of the world.

Speaking in March 2018 to eToro, he said: “If you just imagine the internet created by a for profit company, it would not have worked. It would be a very different world. You want the thing to be as open and neutral as possible.”

A year ago

In May 2017, Stellar was celebrating the first anniversary of what was its biggest tie-in yet – a partnership with financial consultancy Deloitte to build a cross-border payments system that piloted in Nigeria.

McCaleb told Bank Innovation: “A big part of the cross border stuff is that there is a lot of friction between parties. But there shouldn’t be. Just like you are able to send an email from a Google domain to a Yahoo domain, we are aiming to do the same with payments.”

Stellar co-founder Jed McCaleb

The tie in with Deloitte had barely moved the needle on the lumen cryptocurrency in May 2016 which stood at $0.002. But by May 2017, the price of a single token was around the half a cent mark versus the dollar. It was on the way up at last.

Moving forward

The partnerships began to be forged with firm conviction. Fast on the heels of the Deloitte deal came a deal with Tempo Money Transfer, which integrated its IT system with the Stellar network to provide faster global remittances. Investors began to notice and the needle on the lumen began to flicker.

By August 2017, the price was on the move as Stellar’s network was incorporated into India’s third-largest bank Industrial Credit and Investment Corporation of India – ICICI Bank. With its huge unbanked population, India is already making a name for Stellar in a potentially lucrative market – despite the company’s altruistic, not-for-profit ethos.

Next comes the clincher for Stellar. The deal that makes its name internationally and that shows investors the company has a knack for attracting big-name business partners. IBM, the US tech giant with truly global reach and scale, announced in October 2017 that it was partnering with Stellar on a global cross-border payments system.

IBM computer

IBM has partnered with Stellar

To this end, IBM announced it intends to convince central banks to hold lumens to help collateralise a truly international cross-border payments system.

Highs and lows of a volatile January

Yet none of the above events had a truly significant impact on Stellar’s lumen. It took a blistering rally in Bitcoin to drive the lumen and its luminaries higher also.

The introduction, late in 2017, of Bitcoin futures drove unprecedented interest in an asset that had hitherto been inaccessible to most investors. Overnight, exchange-traded funds and other investment vehicles sprung up to exploit what many were already calling the latest investment “fad”.

Bitcoin led the way, hitting its peak at close to $20,000 a coin in December 2017. Less than a year earlier it had been less than $1,000. By January 2018, most cryptocurrencies had joined the extraordinary rally.

Stellar’s lumen hit its all-time high of $0.9199 on the 3 January 2018. This represented a near 46,000% rise on its level of the previous year. This is an emphatically positive move – especially when compared to Bitcoin’s 2,424% from its year ago level to its peak on 17 December 2017.

Subsequent losses for the lumen were similarly more pronounced than those of Bitcoin. Stellar’s token fell 82.7% to its 2018 low of $0.1585 compared with Bitcoin’s 69.8% fall to $5,996.60.

Trading volumes

Daily trading volumes in lumen, however, were and remain only a fraction of that of Bitcoin. In dollar terms during the 24 hours to 1500 BST on 15 May Stellar lumen volumes were around $50.8m compared with $7.14bn in Bitcoin according to data from Investing.com.

Just for the sake of comparison Apple, one of the hottest global shares, trades an average daily volume of 35.5m shares. In dollar, terms, therefore, at the closing share price on 14 May 2018, just over $6.63bn. Like most cryptocurrencies, the main trading volumes come during US and Asian trade, with the biggest spikes during late US and early Asian hours.

While the largest volume of trade in Bitcoin is conducted in US dollars (39.1% according to data from Cryptocompare.com), more than half of trade in Stellar’s lumen (52.7%) is conducted in Bitcoin, with 22.65% in Korean won and 7.9% in dollars.

Influences on price and volume

The main influences on both volume and price are sentiment based. During December 2017 and the first couple of months of 2018 prices and volumes fluctuated on stories of possible tighter regulations on crypto exchanges by various governments.

South Korea – where cryptocurrency trade has become particularly popular – became a significant battleground over sentiment towards digital currencies as its government and monetary authorities talked of trading curbs and tighter regulations on exchanges.

Stellar, although it suffered greater losses has continued to thrive, thanks largely to its high-profile partnerships. Significant spikes in volume have coincided with some of its partnership announcements: indeed, on 16 October 2017 – the day the partnership with IBM was announced – trading volumes more than doubled their previous daily record, nudging just north of the $500m mark in daily volume.

Further such tie-ins with large, multinational companies will likely keep Stellar and its digital currency a buoyant force in the crypto asset industry.

PR Kloy, writing for TechNewsLeader in the US recently, says: “The growth of every digital coin depends on the team’s hard work. Unlike some coins whose team is idle, doing nothing to propel their managed cryptocurrency, Stellar is becoming relevant, and much celebrated in the cryptocurrency space, with an increasing number of once in a lifetime partnerships.”

Stellar’s lumen may become a luminary yet.

Post written by Neil Dennis
Neil is a business journalist of some 20 years experience, 16 of those writing, commissioning and editing on the capital markets desk of the Financial Times. He left the FT two years ago to pursue a freelance career, working for FX-MM and Capital.com among others.

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