Stellar (XLM) Faces 80%-90% Drawdowns, Regulatory Hurdles
3min read Stellar (XLM) has been on a multi-year downtrend, characterized by significant price volatility. The cryptocurrency has experienced steep declines following periods of high short-term bubble risk, as indicated by spikes in its bubble risk oscillator. This oscillator, which ranges from 0 to 1, traditionally shows higher bubble risks when it exceeds 0.5. Notable spikes occurred in 2017, 2018, 2021, and 2025, each coinciding with substantial price drops. For instance, in 2017, XLM peaked at $0.9 before plummeting to $0.1 by 2019, a 90% decline. A similar pattern was observed in 2021, when XLM reached $0.7 and then fell to $0.1 by 2023. Most recently, in 2025, XLM surged to $0.4 before crashing back to $0.1, aligning with a peak in the oscillator at 0.808, which confirmed strong bearish momentum.
Historical price patterns of XLM suggest that whenever the oscillator rises above 0.5, a significant price correction follows. However, a drop in the oscillator below 0.5, coupled with price stability, could indicate a potential trend change. For XLM to break its cycle of sharp declines, it must maintain a price level above $0.4. If this is accompanied by reduced volatility, the asset may enter a more bullish phase.
The ATH Percentage Drawdown chart provides additional insights into XLM’s past declines. In 2018, XLM hit a high of $0.9 but fell more than 90% to $0.1 by 2019. A similar trend occurred in 2021 when the token reached $0.7 and then declined 80% by 2022. In 2025, XLM approached $0.4 before sharply falling to $0.1, an 84.5% drop. This recurring pattern of 80%-90% drawdowns highlights the high volatility and bearish nature of XLM. If the asset can sustain a price above $0.4 while keeping its drawdown below 50%, this could signal a shift to a bullish trend. Decreasing volatility and greater price stability would further support this possibility.
If XLM breaks through $0.289401 under lessened liquidation pressure, it could be a precursor to an impending bullish momentum. Under these circumstances, positions above $0.29 would become increasingly attractive to traders pursuing momentum.
Stellar (XLM) remains highly volatile, with price corrections traditionally occurring after highs in the bubble risk oscillator. However, indications of stabilization in drawdowns and lower liquidation risks may signal a possible recovery. A persistent price above $0.4, along with a drawdown of below 50%, could indicate a move towards a bullish trend. Investors need to monitor major liquidity levels and oscillator trends closely to make sound trading decisions.
The future trajectory of XLM is also influenced by broader regulatory developments, particularly in regions where new regulations are being proposed. A central feature of these regulations is the prohibition on withdrawing stablecoins to self-hosted wallets. This ban is driven by concerns over the misuse of stablecoins for tax evasion and money laundering. Regulators argue that tracking self-hosted wallet transactions is challenging, making it difficult to monitor financial outflows and enforce tax laws.
Industry players contend that such restrictions could adversely affect companies and individuals engaged in lawful financial activities involving stablecoins. Stablecoins are critical for cross-border transactions, payrolls, and favorable financial settlements, and individuals use them for remittance and daily spending. Overly strict regulations could inhibit financial innovation, decrease access to digital assets, and erode the opportunity to realize a more open and inclusive financial system.
A prominent figure in the industry underscored the role of self-custodial wallets in future digital finance. He views stablecoins as an integral part of the new Internet and decentralized finance (DeFi) paradigm, with self-hosted wallets being vital for users to maintain custody of their assets. He advised the central bank to reconsider the planned steps, suggesting that other measures could address regulatory requirements without hampering innovation and adoption.
The proposed prohibition of self-custody withdrawals aims to enhance control and subject these financial operations to regulatory oversight. However, it is cautioned that these steps could disrupt the overall crypto ecosystem and curtail financial access for those who rely on digital assets for routine transactions. Instead of direct bans, a regulatory strategy that balances security with innovation is promoted. The exchange suggests using blockchain analytics, better reporting mechanisms, and enhanced monitoring tools to target illicit conduct while maintaining the advantages of stablecoin adoption.
The current market sentiment for XLM is also influenced by technical analysis. A potential breakout scenario has been identified, which could have implications for its short-term price. Traders are closely monitoring key price levels, with a breakdown below $0.2770 potentially accelerating losses toward $0.2612. Conversely, a successful defense of this level could fuel a bullish reversal, encouraging investors to take a more optimistic view of the cryptocurrency's prospects.
