There is a HUGE problem with Stellar's valuation. This also applies to many other cryptocurrencies with the same issue. Cryptocurrencies are a very new asset and most people don't know how to base their valuation. Stocks are commonly compared using a P/E ratio, which is the company's market cap divided by its earnings in the last four quarters. With cryptocurrencies, there are no earnings to go off of. Most people compare them based on what they think will become most popular or widely used. Yet this is a terrible way to value cryptocurrencies.
Cryptocurrencies should be valuated based on how much money will be used with the cryptocurrency at any one moment. They can't be valuated based on yearly usage. Stock earnings are valuated on a yearly basis because it tells you how much the company is earning over a set period of time. Cryptocurrencies do not make income. The market cap tells you how much money is currently held in the cryptocurrency. It's not how much is held over a year or a day, but for a single moment of time.
The Stellar network uses Lumens as it's cryptocurrency for moving money across borders. You can read on their website that Lumens prevent spam attacks by charging a small transaction fee and by requiring you to hold at least 20 Lumens to use it's network. In the future this requirement will be lowered to 0.5 Lumens and could be reduced even further. Transactions using Lumens only take 2-5 seconds. When someone wants to exchange USD to Euro using Stellar, the Stellar network buys Lumens with USD and then the Lumens are sold to the receiver in Euro credits. Those Euro credits can then be withdrawn for Euros. The Lumens themselves are only held during a transaction for 2-5 seconds. There is no use in holding Lumens besides for those 2-5 seconds, for holding more than the base requirement, and for investing purposes.
Every day, there is about 5 trillion dollars traded between currencies. Since transactions take 2-5 seconds, we can use that information to calculate how much money will be used in Lumens for currency trading at any one moment.
That's a very small amount compared to its current market cap of about 10 billion. Almost all other value in Lumens comes from people investing in it because they hope that other people will invest in it who are also hoping that other people will invest in it. This is not a sustainable model and will eventually collapse.
Yes, there will always be people who are going to invest in Lumens which will give it more value than it needs, but the cryptocurrencies that have the most potential are ones which the world will use billions or trillions of dollars worth at any moment. Here are some examples of assets that investors use for more than just investing:
Storage of value cryptos such as Bitcoin, Litecoin, Dash, and Monero are used to hold money and purchase goods and services. These cryptos aim to replace traditional fiat broad money which there are 90 trillion dollars worth in the world. Even if storage of value cryptos only take up 5% of that, there will be about 4.5 trillion dollars worth held in those cryptocurrencies at any one moment.
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But what does investing in Lumens give you besides a chance it will raise in value? Nothing! It's not a good way to store money, it's not a good way to purchase products, and holding it does not give you any sort of voting power. You might be thinking, "Lumens can be used to purchase products and you can hold your money in it. So it's no different than Bitcoin or Litecoin and could end up being worth a trillion dollars." But it will never have enough adoption to have that sort of value because there isn't enough development towards making it that way. The developers are trying to make Stellar a way to exchange fiat currency quickly and cheaply between countries. That's not going to change.
I can't go through every single one of them, but there are lots of cryptos which have no advantage to holding it. Many cryptos are only used to pay for fees associated with using its blockchain. Most people who use these cryptos on a regular basis will only hold enough to pay for those fees. Only investors will hold lots of value in the crypto as a bet that its value will go up. If there is no other use in holding the cryptocurrency then many investors will sell it as soon as it starts going down.
Eventually we will get to a time when there's a single cryptocurrency that's been established as the main crypto for storing money and for purchasing goods and services. No one can really say which one that will be, but when the value of that crypto goes down, people aren't going to panic sell because they will still need to use that cryptocurrency at stores and market places.
So before buying a cryptocurrency, make sure you think about how much of that crypto people will need to hold if they want to use it for its intended purpose. If it's used to store money, then some people will hold millions or billions of it at all times. In the case of Stellar, you will only need to hold 0.5 Lumens at any time. Any more is only used for 2-5 seconds. Stellar's current value is ridiculous and I expect it to be much lower in 5 years.
