What caused STEEM to get dumped? Why I think the worst might be over
I remembered reading a post from @schattenjaeger asking why did STEEM crash and the reason behind. Post HF21/22 it is not that worthwhile to write lengthy comments as they are unlikely to get any votes. So I thought it is a better idea to write a full post and reply to @schattenjaeger through this post.
Before I start, certain parts of what you are about to read may not be popular opinion. In case you are about to downvote me, the TLDR is that I am overall still bullish of STEEM in the medium to long term but in the short term, there might still be one more leg down. Here is why...
STEEM price since the start of the year
Let's first take a look at STEEM price chart since the start of the year, courtesy of @coingecko.
In crypto, we should not just look at price in terms of USD, the BTC and ETH comparatives are actually more important. This is because when you invest in an altcoin, you want to make sure it does better than BTC and ETH. With that said, It is not difficult to see that STEEM was on a downward path since March in terms of USD, BTC and even ETH (boxed in green). However, if you look at the price movement a little closer, you will notice that there is some kind of surge in terms of USD, BTC and ETH in early February.
So what happened in February?
On 8th February, the Steem-Engine token creation platform was launched. It got many Steemians excited because a lot of people were waiting for SMT which just kept getting delayed. So when Steem-Engine was announced, it was music to many of our ears. Of course, that led to a massive level of hype. Many projects started to talk about launching a token and a common token distribution method was based on the level of Steem Power. I think that period was a mini-FOMO phase where many people wanted to get some Steem-Engine action.
Then what happened in March?
One month later, the next big thing happen. The tokens market started trading on Steem-Engine. Since then, STEEM price started to dump, especially when compared to BTC and ETH. Here is the unpopular opinion, I think this is because the myriad of Steem tokens were starting to dilute STEEM price at that time. When the amount of fresh fiat money being converted to STEEM is lower than the amount of STEEM converted to tokens, it is inevitable that the price takes a hit.
Unlike what happened to the ICO fever for ETH, there were insufficient money flowing into STEEM to support the tokens market. For the case of ETH, there were sufficient fresh funds being poured into ETH to support the price and even pumped it to an all time high. Unfortunately, for the case of STEEM, that did not happen. I see 3 main reasons,
- First, lack of marketing which resulted in insufficient people outside the Steem ecosystem to FOMO into STEEM.
- Second, the crypto market was still wary of the ICO fever and generally just do not want to participate.
- Third, the project launched generally lacked quality as compared to those launched as ICOs in ETH
It didn't help when chatter about HF21 started around that time. Talks about the lowering author payout and the different reward curve (collectively known as the Economic Improvement Proposal or EIP) probably brought some FUD. Unsurprisingly, the price kept going down and never really looked back.
Bottomed out?
Looking at the price chart now, we have reached a 52 weeks low. The question will be, have we bottomed out? Here is where I get bullish. First, HF21 (subsequently forced to also have a HF22) is over. The platform is now stable and things are back to normal. The true effect of the EIP remains to be seen. However, we are already starting to see SPS (Steem Proposal System) being used positively with some good projects being funded through a decentralized manner.
There seems to be more manual curation as well, at least that is what I feel. Personally, I am manually curating more often as it is slightly more profitable to do so and it simply felt like the right thing to do. Overall, there is just this positive vibe going on. All the whining, fear, uncertainty and doubt seem to be lesser as compared to pre-HF. With curation becoming an "in" thing, I am expecting more people to power up, which is exactly what is happening in the past week or so.
Source
Second, we are starting to see the positive effects of Steem Tokens and the associated Tribes. After HF21/22, Tribes became more important as people who are finding it difficult to earn STEEM under the new system seek Tribes as alternative outlets to grow on this platform. The availability of alternate Tribe interfaces are also starting to bring in new users. Today, when I check @penguinpablo's latest Steem stats, I was happy to see that SteemLeo, one of the Tribes I am active in, creating new accounts.
Source
To me, this is a sign of Tribes doing what they are supposed to do, bringing in more users to this platform! While this may just be an once-off instance, I am going to take an optimistic stand on this.
Third and final reason, Steemit Inc is starting to get on track. In a recent blog article, @steemitblog announced the availability of SteemDAO, but what most people probably missed is that they are pausing STEEM selling for the month. This is really positive news as it reduces selling pressure on STEEM. It also goes to show that the layoffs, MIRA and other cost cutting measures seem to be bringing STINC on the right track. This is even more evident when STINC is now able to hire instead of laying off people.
There is still uncertainty
With all these said, as mentioned previously, the true effect of the EIP is yet to be seen. In the worst case scenario, there is a chance of mass exodus of users who are unable to survive in the new system. When people go, they take their money with them and thereby leading to selling pressure. Hence, that is why I think there is still a chance of one last leg of selling. However, when that happens, I think those who remain will be those who are able to fit in the new system under the EIP and with the support of Tribes. These people will continue to stay and HODL on, thereby providing strong support to STEEM price.
I am of the opinion that there is a slim chance of that exodus happening. That is why I already purchased more STEEM, they are still on the exchange though. I have also set aside some more money to buy more if the last leg of dump does happen.
Conclusion
In my opinion, the introduction of Steem tokens diluted STEEM price initially. However, with the availability of Tribes, the tokens now serve as additional pull factor to keep people in the ecosystem. Hence, the earlier negative effect is now being slowly replaced by the positive ones.
SPS was a great move to make Steem more decentralized in terms of governance. The world has not seem to notice that yet, but I think this is a significant change. On the other hand, the impact of EIP is still an unknown and only time will tell if it will result in further suppression of STEEM price. Personally, my gut is telling me that the worst is over. Fundamentally, Steem is stronger than ever and price should reflect this eventually.
All these, coupled with a potential alt-season (with ETH pumping these couple of days), are making be rather bullish on STEEM. At least on the medium to long term.
Disclaimer: I am not a financial advisor and this should not be taken as a financial advice. Always do your own research when investing.
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Very optimistic @culgin
However I'm still worried about potential selling pressure coming from all those accounts, that started powering down lately (like chbartist and quite a few others). Right now all that powered down SP is turning into liquid steem and probably in few weeks those users will come back to sell whatever they powered down already.
You nailed it. I wonder who so many people actually compare STEEM to usd. And at the same time same people compare Steem Engine tokens to STEEM (instead of usd). Isn't strange? :)
That's also my opinion. However I've read comments saying that trading STEEM to PAL or LEO (example) is not going to bring price of STEEM down in relation to BTC, ETH or any fiat. And it kind of make sense. So I'm seriously not sure what to think about it.
Yours, Piotr
I actually beg to differ. A coin or a token is just a representation of point-in-time value. If no new fiat money is coming into STEEM coin (i.e. the value against fiat is constant), but there are new tokens competing for the same pool of value, then STEEM price will drop as some value will flow into the tokens
In order not for STEEM price to drop, there must be fresh fiat money coming into STEEM to even out the effect of the new tokens
I find myself needing to beg to differ with what you have begged to differ on....
I would argue that Steem Engine has only been a positive for STEEM and that it might have performed even worse than it has if it had not been for the existence of SE tokens.
Bitcoin is almost useless. Its not scalable for a real global marketplace, the Lightning Network is a joke and fees can get to outrageous rates. But, its still "King" in that its the easiest cryptocurrency to obtain for fiat currencies. In a recent tweet by some BTC maximalist he asked, "What brought you to buy your first bitcoin?"
The most common response was, "I bought bitcoin to buy altcoins."
So, while Bitcoin is not useful in the wider economy, it is one of two (ether is needed for most dapp tokens) currencies needed to own a share of the blockchain industry.
STEEM is now benefiting from that same privileged position of being a currency for buying cryptocurrency. You need to have STEEM in order to buy SE tokens, and you also need to have a Steem account. This creates a whole new form of use for STEEM that did not previously exist.
Useful or not, remember that value is just a perception. BTC was launched for exchange of value, but it slowly evolved into a store of value. It may not be the most convenient, most scalable or fastest mode of exchange, but people are still keeping it.
Yes, there are people who buy BTC and exchange it for alts, but there are also people who buy it to hold it. In fact, there are still many people out there who have never heard of any altcoin.
I fully agree that STEEM has now more utility with the launch of SE tokens. Since the only way you can get SE tokens, is to get STEEM first. However, that is only true if fresh money from outside the STEEM ecosystem is drawn in. I think this did not happen when SE tokens were first launched since the main target audience during the launch was really just Steemians.
All these being said, I think the SE tokens market have stabilized a lot lately and now a good number of them have their own Tribe interface. Which is good because they now can start to draw in new users outside the ecosystem. In addition, tribes also motivate existing users to stay. Personally, I am enjoying posting to a few of the tribes and it is really fun to see my SE tokens grow.
Again, great comment. Thanks!
The fall of Steem price is of course tied to the rest of crypto. Other influences I consider the primary influence has been the leaving of core developers. Seemed to me that Twitter and Facebook were able to gain a lot of momentum before the scavenger advertisers started to influence the system. It does seem like the tribes you mention and gaming are starting to turn things around.
I agree that STEEM price is partially brought down by the rest of the crypto market. However, during this there are still a few that outperformed BTC (e.g. BNB and LINK). I thought with the developments on Steem, the price should be much higher
Before the end of the year we should see a gravitation of non-coiners to crypto. More than one chain expects to ease on boarding within months.
Hello dear @culgin, thanks for sharing this piece.
I think your analysis and exposure in this article are very reasonable, personally I am feeling all this in steemit, I think there is a stabilization, even a new boom with the arrival of the tribes and all this just explained.
I remain optimistic begging because everything is as you propose and that the price will recover. I am in Venezuela and right now I am instructing some people to start on steemit, I hope that steemit can be an economic alternative for them as it is with me.
Thanks friend, great article.
@fucho80
Thanks for spreading Steem to others. I think the people in Venezuela who are suffering from high inflation will be able to benefit from Steem.
Howdy dear @culgin.
I have always opined that steem-engine is a strengthening factor of the Steem Blockchain. I have said several times in my publications that it is the new tokens and tribes that will bring the recovery of the value of Steem.
But now you have put me in a new perspective.
Is it likely that what weakens me is also my strength?
Was the coincidence in the time of the entry into force of steem-engine and the uncertainty before the start-up of HF21 the factors that affected the value of steem?
There are many doubts to clarify, but you have put us in new perspective. We must continue studying the evolution of this blockchain and always try to contribute our personal effort by creating content and curing.
Your Friend, Juan.
Indeed. Correlation does not indicate causation. What I wrote is just my theory of the chain of events :)
I share what is stated in your theory. I agree.
Very detailed analysis here, @culgin. Thanks for your brilliant contribution. I agree with you absolutely.
Thanks for dropping by!
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Finally a post where I see someone understand clearly why STEEM is so low...
Especially for that bit that everyone neglects... about SE... Do you know how much money is on SE??? Think about it...
Haha.. thanks. Yea, I think many people do not understand how money and value work. SE tokens are nice but if they do not bring in value externally then internal STEEM value will be drained by them
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Not trolling you with multiple responses, but I'd just like to point out that this is only true if the STEEM ultimately finds its way onto the exchanges for BTC/USD via the token sellers. On the contrary, projects tend to find many reasons to power up the acquired STEEM or use it for long-term operations.
That said, Ethereum ICOs are much more likely to not have sell pressure on ETH due to the fact that those dapps are going to need ETH to cover gas costs for their applications. That is an ironic feature of free (or RC cheap) transactions on Steem, it does take away a potential use case for STEEM.
Some of this sell pressure is a good thing though. I would argue that the existence of 3Speak is causing sell pressure on Steem because they guys are charging content producers in STEEM and obviously they're paying bills with the STEEM, they have indicated that they need to do that.
Sell pressure is not always a bad thing and might be necessary. People complain about miners causing sell pressure, but what else can you do? The businesses validating the blockchain need to pay their bills! Sell pressure is a natural effect of businesses earning the blockchain's native currency and using it to cover operational costs.
Agree that selling pressure will always be there and it cannot be stopped. I think the important thing is whether there is sufficient buying pressure to counter the effect. It is a decentralized balancing act which no one can really predict. Even on hindsight, I cannot 100% confirm or deny what is the real reason for the dump. As I said, it is just theory :)
Great comment by the way, thanks!
Wonderful post. I love your opinion. Turned my attention to some facts. Thanks @culgin.
The worst is over✌
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Thanks for reading!
Excellent narrative regarding the old and #newsteem paradigm shift. I am happy to have remained active (although I went ghost mode for a while there as soon as steem-engine launched), building my stake, and powering up to take advantage of steem’s new proposal systems.
Let’s hope we can avoid this exodus and propel steem forward like we all have envisioned from the early beginnings 🚀👍🏼🙏🏼
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Indeed. I am also hoping the exodus I predict does not happen
interesting thoughts and i agree with most of them. When i first read a couple of things about the new reward system that basically says "vote for bigger accounts with bigger rewards" so i felt frustrated. What changed my mind a bit (i am still a bit cautious) is the sudden turn for quality posts and manual curation.
If that continues and people actually care of rewarding the quality posts without caring that much about how big the account is then that would be great. It would be like it was when steemit first launched.
What i haven't understood though, give the fact that i was absent for 5 months :p is the whole Tribes concept. They just created a different interface and token and it's just that or there's more to it?
A tribe is like a sub-community. If you see the entire Steem platform being a campus, Tribes will be like the school clubs, e.g. Science club, Sports club, Math club, Dance club and etc. Just like what these clubs do in schools, tribes are supposed to provide identities to individuals so that they have a sense of belonging. If this works out as planned, it is going to make the ecosystem stronger.
thanks for explaining it with such simple terms!
I'd agree with you on most of this. I can see a future where tribes and communities are doing their own thing from onboarding the users t holding them there without interacting with steem itself. For me that is a yea or two down the line and steem.inc's communities might do something similar but it opens up the potential for lot of users as different groups all market and bring people in as well as create buy pressure
Indeed. I hope that one day Tribes like Steem Leo is able to attract authors from investment related sites like Seeking Alpha and Motley Fool to write on Steem. It is certainly going to take time because the Tribes' interfaces are kinda basic right now. However, I am confident things will improve over time