The real reason why Steem will make you rich is the low 'velocity' of Steem!

in #inflation4 years ago

I just saw the post from Alex Fortin about the inflation rate of Steem. He explains that the annual inflation of 100% is largely put back into the community and therefore this inflation is not actually inflation of your purchasing power. I thought that was a very good point of Alex.

However... I think the real reason why Steem will make you rich is because of the low 'velocity' of Steem!


Let me explain: What Alex says is only true when people convert their 'Steem' into 'Steem Power'. Therefore there is a very big incentive to do just that. Not doing so will most likely result in loss of purchasing power. At least in the long term. In other words, any newly created Steem is quickly locked-up in Steem Power, and therefore not available for lowering the price of Steem. It's practically not being added to the available supply.

So, besides being compensated for inflation by getting more Steem in your 'Steem Power'-account, the price of Steem is also driven up because any newly created Steem is quickly taken off the market and shall not become available any time soon after it is converted into Steem Power.

This means that the 'velocity' of Steem is VERY slow, which is very positive for the price of Steem. After all... the same single Steem can only be spent once per year or less.

After I realized this, I was not afraid of the inflation rate of Steem.

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Very interesting. I posted a paper on the economics of cryptocurrencies 2 months ago. With all the new economists on the platform, I would like to hear your input: https://steemit.com/cryptocurrency/@limitless/the-rise-of-cryptocurrencies

Cheers for sharing your thoughts, I hear Jim Rickards often talking about the "Velocity of Money" and the impact on the price of precious metals. Be interesting to watch the price of Steem in the coming weeks.

You're right! I could not remember exactly where I learned about "Velocity of Money", but that was most probably from Jim Rickards indeed. I read his book 'Currency Wars' a few years ago. Very interesting book! Thanks for pointing that out!

No worries, yes good material from Jim, hats off to you though for making me think of how Money Velocity will effect the future price of Steem.

Well thought out, I was thinking of those two concepts myself and you brought them together beautifully.

Thanks! I appreciate your feedback very much :-)

Lets STEEM on. thanks for the post.

Great input. I'm out of work after being hit by a car. Check out the pics.. https://steemit.com/cars/@madhatting/i-got-hit-by-a-car

Milton Friedman assumed constant velocity ( which doesn't look correct after the gfc) but he assumed changed in technology might increase the velocity. What technologies would increase steemd velocity?
I think allowing transferable steem power, changing the 104 week rule or the 2percent power down. Maybe also the rate at which people acquire steem power through purchases rather than voting posting etc.

It makes sense. Great explanation. People who aren't locked out of the platform right now are scrambling to power up for the most part. They want to get infront of the wave of minnows who will come on when this is opened back up. We are really lucky to be able to post on Steemit Right now. I just did a post about it. It is a must read! https://steemit.com/steem/@brianphobos/why-steemit-users-are-so-lucky-right-now-3-main-reasons

You make a great point, with lots of steem locked up, the slow trickle will keep the price stable. I saw another post somewhere that showed more transactions for steem than eth. Now that is something big

Solid post. Same mindset here. Buy low, sell high, it seems so simple but most investors still don't seem to get it :-) An interesting website I found: https://www.coincheckup.com The site is my go to place for crypto investment analaysis and indepth coin research. Go to: https://www.coincheckup.com/coins/Asch#analysis To watch Asch Detailed report.

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