In this pillar piece, we hope to answer these questions and any other you might have.

We begin by summarizing our most recent price analysis and predictions for Steller Lumens.

Then we move onto a fundamental analysis wherein we differentiate between Stellar the platform and lumens the currency. Furthermore, we analyze before analyzing Stellar’s competitive advantage over other digital assets.

Next, we offer a technical analysis of the price of lumens or XLM. Based on these analyses, we offer price predictions for 2019 and 2020 while defining the competitive advantage Stellar appears to possess. We believe this competitive advantage will be maintained for at least 5 years, if not longer.

Regular Price Analysis of Stellar Lumens (XLM)

The price reached a low of $0.094 on Apr 26. A gradual increase followed. Lumens hasbeen trading inside an ascending channel since.

The price broke down from the channel on May 6.

The breakdown and the channel can be seen in the graph below.

Based on our latest analysis, the price will eventually increase and again trade inside the channel.

The closest resistance area is found near $0.101.

To read our full May 2 XLM/USD and XLM/EUR price analysis, click here on the blue button below:

Oh Look, There’s More…

Fundamental Analysis

Our fundamental analysis examines the competitive advantage of Stellar over other cryptoassets—namely Bitcoin. It highlights market differentiation and various strengths while also examining possible signs of weakness.

Stellar vs. Stellar Lumens

It is important to first differentiate between Stellar and Stellar lumens. Stellar refers to the network and platform which makes possible peer-to-peer transactions. As explained below, using Stellar nearly any currency can be sent from one person and received by another as a different currency.

The Stellar platform aims to create a truly decentralized and open financial system. Its value is derived from its actual implementation and usage.

Lumens (XLM), on the other hand, are a native cryptocurrency deployed on the Stellar network. The price of lumens may increase with the adoption of the network. On the other hand, the price of lumens may not be affected by the integration of Stellar into global society.

Because Stellar allows both crypto and fiat currencies to be sent and received, the platform might aid the adoption of one cryptocurrency—like Bitcoin (BTC)—without increasing adoption of its own lumens.

Using Stellar to send or receive bitcoins would indicate increased use-value of Stellar—its primary form of value—even if the exchange value of lumens suffered as a result.

In this fundamental analysis, we examine the competitive advantage of Stellar over other digital assets. However, our technical analysis focuses on the price of lumens. Both are used to define future long-term use-value for Stellar and changes in price for lumens.

A Stellar Team

The Stellar network was launched on July 31, 2014 by the Stellar Development Foundation. Its first three members included:

• Jed McCaleb who had previously founded Mt. Gox and co-founded Ripple Labs, Inc—which hosts the centralized XRP network.
• Joyce Kim: a former lawyer.
• Patrick Collison: CEO of Stripe and initial seed investor. In 2014, Collison invested $3 million of seed money into the venture. In return, he received a seat at the Foundation’s table and 2 billion stellars—now called lumens. At the time of writing (Mar 14, 2019), these lumens were worth over $200 million.

In 2015, David Mazieres—a professor of computer science at Stanford University—joined the team as Stellar’s chief scientist. He designed the Stellar Consensus Protocol (SCP) as an alternative to consensus algorithms like Proof-of-Work (PoW) and Proof-of-Stake (PoS).

The Purpose of Stellar

Together, these four laid the foundation for a new decentralized global financial system.

Using Stellar, users can transfer lumens dollars, bitcoins, or virtually any other imaginable currency to other users anywhere in the world. Furthermore, Stellar has a built-in conversion system which allows a user to send one currency and the recipient to receive an equivalent amount of another.

[bctt tweet=”Stellar aims to create a new decentralized global financial system by going beyond the limits of Bitcoin.” username=”beincrypto”]

The process is simple:

1. A user deposits some currency or currencies into a gateway on the Stellar network. This user might be Bob and he might deposit both dollars and bitcoins.
2. The distributed leger (i.e. Stellar blockchain) records the currency as credit. Bob now has credits for the dollars and bitcoins he deposited on the network.
3. The user Bob sends credited dollars or bitcoins to another user Bill. Bill wants lumens.
4. The credited bitcoins or dollars are converted into credited lumens.
5. Bill receives the credited lumens.
6. Bill withdraws the lumens onto a wallet or exchange where he can spend or trade them as actual lumens.

Bitcoin is one of many currencies that can be traded across the Stellar network. So is Ethereum (ETH), XRP (XRP), Litecoin (LTC), and others.

This means that the value of Stellar goes beyond the value of lumens alone. It also includes the competitive advantage of the Stellar platform.

[bctt tweet=”The Stellar platform integrates lumens, other cryptocurrencies, cryptoassets, and fiat currencies within a single network in which they can be traded and exchanged easily and with few fees.” username=”beincrypto”]

The Problem of Trust

Stellar also seeks to solve the initial problem of trust defined by Satoshi Nakamoto but in a very different way than Bitcoin. 

On Oct 31, 2008, Nakamoto published the Bitcoin whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” In the introduction he defines a problem:

“Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model.”

To solve this problem, he conceptualizes a peer-to-peer (P2P) network in which all transaction data is recorded on a publicly distributed ledger called the blockchain. According to Nakamoto, validating transactions onto the blockchain could be done using a cryptographic consensus algorithm called Proof-of-Work (PoW).

Proof-of-Work Makes the Rich Richer. Click Here to Learn More!

He was right, but his solution did not solve the problem of trust. Instead, two new trust networks emerged:

1. There remained the trust between buyers and sellers on the network—which is necessary for successful peer-to-peer (P2P) transactions.
2. Trust in miners seems to have replaced trust in financial institutions, but miners still act a third-party intermediary in P2P transactions with bitcoins. This means that the goal of Bitcoin to remove third-party intermediaries could be considered at least a partial failure.

The Stellar Consensus Protocol

In the whitepaper for the Stellar Consensus Protocol (SCP), Mazieres noted many other problems with Bitcoin and its PoW consensus algorithm:

• The possibility of 51% attacks on the system
• Resource dependency (mining requires inordinate amounts of electricity)
• A high and costly barrier of entry for new miners
• Reliance on a closed system of nodes to confirm and validate transactions
• Privileging of the wealthy (expensive machines must be used to mine Bitcoin which generates new wealth for the miner)

SCP solves these and many other problems associated with PoW and other consensus algorithms. It allows new nodes to enter the system at any time so long that they are able to successfully join a quorum slice.

[bctt tweet=” Trust is inherent to the SCP model. Unlike Bitcoin, trust is not something to be eliminated. It is something to be accepted, embraced, and exploited for the functioning of the system.” username=”beincrypto”]

A quorum represents the number of nodes needed to confirm a transaction onto a blockchain.

In a closed system, there is a finite number of nodes. Validating transactions requires that a pre-determined majority reach a consensus that the transaction is valid.

However, in an open system, this would not work.

For example, a closed system of 100 nodes might require a simple majority of 51 nodes to reach consensus. However, if that system was open and 10 more people joined, 51 nodes would no longer be a majority.

Either a new, constantly changing level will have to be developed—which is impractical—or a protocol must be instituted that allows for open membership. SCP is that protocol.

SCP functions by allowing nodes to enter the network only by joining quorum slices.

The members of those slices must trust the new node in order that it might contribute to the federated voting system which generates consensus.

Trust is inherent to the SCP model. Unlike Bitcoin, trust is not something to be eliminated. It is something to be accepted, embraced, and exploited for the functioning of the system.

Using trust, SCP perpetuates decentralized control.

It avoids centralized validators from seizing authority over the network.

The rich are no longer rewarded for being rich, but those who are trusted may be rewarded for being trustworthy.

Educational Resources

Mass adoption of blockchain technology will require education. According to our analysis of the Fluence 2019 State of dApps report, we discerned that increasing the number of dApps users and solving other problems will require:

“Educating the masses about crypto…[while] terms like ‘cryptocurrency, cryptoasset, ERC20 tokens, fungibility, and consensus algorithms’ may be understood within the crypto industry…they have become jargon for those outside the industry. Teaching people what these and other crypto-related terms actually mean is integral to mass adoption of crypto.

Stellar embraces this philosophy and host a number of educational resources.

This includes academic papers for the computer scientist, slide shows for the layman, webpages which define “decentralized networks” and other terms, and much more.

The material that the Stellar Development Team has assembled throughout its website, social media channels, Medium articles, and other places is designed for a wide and diverse audience.

This not only offers Stellar increased competitive advantage, but it is also helpful for the overall mass adoption of blockchain technology including Bitcoin, Ethereum, and other cryptoassets.

Real-World Use-Cases

Before moving onto the technical analysis, we would like to mention the many real-world use-cases already displayed by Stellar. A core banking solution using Stellar was developed for Deloitte—one of the largest four accounting firms in the country.

The solution is reported to have reduced transaction fees by upwards of 40% while bringing transaction times to only five seconds.

Other solutions have been developed for Tempo, Parkway Projects, Praekelt Foundation, Philafy, bext360, and others.

New use-cases for Stellar continue to emerge as well. Combined with the unique purpose, protocol, and publication of educational resources, Stellar has distanced itself from Bitcoin and other cryptoassets in pronounced ways.

As long as Stellar continues proving itself a unique and innovative solution to current global financial problems, long-term price increases of lumens may follow.

However, the true value of Stellar remains defined by the network’s utility—not its native currency. Use, rather than exchange-value, is what makes Stellar such a remarkably differentiated network.

Technical Analysis and Price Prediction

On Jan 2018, the price of Stellar lumens (XLM) reached a high of almost $1. It has been down-trending since—alternating between periods of gradual and sharp decreases. Ultimately, XLM has lost almost 90% of its total value since highs in early 2018.

Original Crash

In order to try and predict the price of XLM in the long-run, an analysis of the previous crash is required.Below is a look at the prices from the period of Aug 2014 to Mar 2018.

The price made a high of nearly $0.009 in December 2014. A gradual downtrend ensued, which took prices to a bottom of $0.0014.

The downtrend lasted 791 days and amounted to a loss of almost 80% of XLM’s value.

Afterward, the price initiated a rapid upward move, which took it to a high of $0.072 in June 2017. The increase amounted to 5100% from the 2017 bottom.

The ratio between the Mar-Jun 2018 increase and the Dec 2014- Mar 2015 decrease was close to 65. (5100/78)

We are later going to use this ratio in order to make an assumption about where the price of XLM may be headed in 2019 and 2020.

A Closer Look

The price of XLM on Poloniex is analyzed at one-day intervals from Aug 2014 to Aug 2017

The price bottomed at $0.0012 in December 2014. It initiated a sharp upward move which took it to $0.009. Then a sharp decrease ensued. Afterward, there was a long period of inactivity combined with movement inside a horizontal channel between $0.0037 and $0.0012.

The decrease took 140 days to materialize, while the movement inside the channel amounted to 651 days, for a total of 791 days from the Dec 2014 high to the breakout point.

Current Crash

The price of XLM on Poloniex is analyzed at one-week intervals from Jan 2015 to Mar 2018.

The price reached a high of $1 in January 2018. A downtrend followed, which took the price to a low of $0.07 in February 2019. The drop amounted to a 91% loss.

We are operating under the assumption that the price will closely follow the 2015 crash. Therefore, the current trading range with a bottom at $0.07 should last until approximately March 2020.

Subsequently, a rapid upward move should begin which takes the price to a high of $5—an increase of 5700%

The rate of increase is found by multiplying the ratio from the 2015 crash with the 92% decrease from the Jan 2018 high of $1.

Stellar Lumens Price Prediction 2019

The price of XLM on Poloniex is analyzed at three-day intervals from Jan 2015 to Mar 2018.

Following our prediction, the price at the end of 2019 should not be very far off from the price today, inside the horizontal channel between $0.07 and $0.2.

However, as is visible from the image above, the price of XLM has made the following pattern:

1. Sharp increase
2. Sharp Decrease
3. Sharp Increase
4. Sharp Decrease
5. Horizontal movement

Therefore, the $5 high should be the first high, which is followed by a sharp decrease and then another increase, followed by a decrease and horizontal movement.

Stellar Lumens Price Prediction 2020

In order to successfully predict the price at the end of 2020, we need to find the value of the high on the second upward move.

In order to find the rate of increase of the second upward move, we use the same formula as before with a slight alteration.

In order to find the rate of increase, we calculate the increase from the breakout point of the horizontal channel in 2017 to the $1 high experienced in January 2018 instead of the high on July 2017.

Using that rate we get a 26,531% rate of increase which would take us to a high of $45.

In addition, the price reached a high of $0.072 on Jun 2017. A gradual decrease followed by a sharp increased. Price reached a top of $1 in January 2018. This movement took 245 days.

In the previous section, we estimated the time of the first high to be on Mar 2020. If the price follows the 2014 crash and subsequent 2017 rapid increase, it will take 245 days for the price to reach the second high of $45, around Dec 2020.

Stellar Lumens Price Prediction 2021

While the 2019 prediction has been relatively accurate, the XLM rate of increase stalled considerably in 2020. Therefore, since the Dec. 31, 2020 prediction has been inaccurate, we need to use a different method in order to predict the XLM price on Dec. 31, 2021.

One such method is given by looking at the weekly MACD, which has crossed above 0 only twice in its recorded history (shown with the green arrow in the image below); on Oct. 2016 and Aug. 2020. Both times, a sharp drop transpired, which was followed by a significant upward move in 2016, and the beginning of possibly a significant upward movement in 2020.

Doing so and assuming the same rate of increase in both periods, we arrive at a price near $5.33 for XLM on Dec. 31, 2020.

Therefore, even the revised method suggests that XLM will soon undergo a very rapid increase.

Summary of Analysis

There are similarities between the 2014 and the current crash. The following predictions are made with the assumption that price will follow the pattern laid out in the previous crash:

• Between $0.1 and $0.2 in Dec 2019
• Near $5.30 in Dec 2021.

Conclusion

The value of Stellar is not dependent on the price of lumens. There are primary features of the Stellar—such as its purpose, platform, and protocol—that cannot be quantified by exchange-value of the native cryptocurrency deployed on the platform.

In short, stellar’s value is derived by qualitative usage as a decentralized, global payment network and financial not from the conversion rate of lumens to dollars. Nonetheless, the potential future values of lumens can be predicted using trends and indicators as we did above.

[bctt tweet=”Valuing Stellar as a decentralized, global financial system requires more than increases in the price of lumens. It requires mass, global adoption of the Stellar platform by all major entities in the marketplace.” username=”beincrypto”]

Attaining this goal will necessarily require global mass adoption of the Stellar platform. Such adoption would actualize Stellar’s value. Increases in the price of lumens, however, would not necessarily lead to the adoption of Stellar’s platform or the actualization of its value.

It is important to remember that valuing Stellar based on its adoption and utility is very different than pricing lumens based their conversion rate to the dollar. Stellar’s value and the price of lumens are intersecting but not identical phenomena. An increase in one does not necessarily correlate with an increase in the other.

What do you think of our price prediction for Stellar (XLM) in 2019? Let us know your thoughts in the comments below! 

We also publish regular pillar updates for other cryptocurrencies and cryptoassets:

[Disclaimer: The contents of this article are not intended as financial advice, and should not be taken as such. BeInCrypto and the author are not responsible for any financial gains or losses made after reading this article. Readers are always encouraged to do their own research before investing in cryptocurrency, as the market is particularly volatile.]

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