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RE: The Economics Behind the Steem Dollar Arbitrage..
Thanks for your speedy post Ollie, reading it I realised that I didn't explain myself properly.
The arbitrage I was speaking of, arises from the delay between internal and external market feeds. According to this article ....
In fact, I've just done what I should have done in the first place and link you to the article.. https://steemit.com/steem/@sigmajin/this-biggest-reason-steem-prices-are-falling-the-arbitrage-sabotage-steem-dollar-teeter-totter
I have no idea if it's accurate or not, just wondering what you think?
Thanks again :-)
Cg
That post was inaccurate. Arbitrage doesn't cause prices to go in any direction. What happened in that case was that a huge amount of Steem was sold for Steem Dollars on the internal market at a price lower than the external market.
This resulted in a spike up of SD to BTC externally and a spike down in Steem externally. This isn't whats causing prices to drop, whats causing prices to drop is powering down from several large whale accounts. When these accounts power down they power down vests in equal payments. Which means that they receive more liquid steem each week.
What happened is that the markets figured this out and demand dried up, creating a snowball effect of selling pressure. It wasn't arbitrage that caused the move down, it could have worked in exactly the same way the opposite direction.
Ultimately a large amount of steem was sold internally, it's not arbitrageurs that caused the move down.... it's because a large amount of steem was sold internally..
Its not one particular case, it happens frequently. And no, its not triggered by a huge sell off of steem on the internal market. What always happens is huge Buy volume on the external market, followed by arbitrageurs creating huge sell volme on the external market and huge buy volume on the internal market.
Those ridiculous buy spikes are really shoddy trading, I've been trading around them, in every case the offers are wiped out and then met by sellers at some resistance point. As soon as I saw the pattern I started to trade the range buying at the low and selling at the spike high. I'm not trading the arbitrage just the range.
You can't expect to break out of a range in one clip, it needs to be squeezed out slowly. Whoever is buying in these aggressive spikes is showing their hand, the pattern is pretty clear, sell any aggressive spikes as the buyer never backs them up then buy back in lower.
It's taking advantage of someone who doesn't know how to trade a range. The only reason there's an arbitrage opportunity is because the buyer or buyers are too aggressive and frankly don't know what they're doing.
hm.
so youre saying:
some random dude (or dudes) comes along and unstrategically buys up a bunch of steem on the exchange
this casues an arbitrage and a bunch of volume, but thats not really doing anything except producing white noise.
Whats really bringing down the price down is savvy traders who see the opportunity to "skijump" past the downslope.
I will give you props that this is the only viable alternative explanation i have yet heard for the phenomenon i have actually seen.
read this one too and wondering as well.
See reply to @cryptogee Let me know if you want me to elaborate further
I had a feeling I might have misunderstood ;) I will have a look. Your giving me idea's nonetheless for which I thank you.
Hello @cryptogee
I have read it, and the main assumption in this article is completely false IMO.
The only thing that is happening is, some user working orders on the internal market are giving away edge. These users want to sell Steem, they are working an order on the internal market to do so. The market move dramatically so that, they could get a better price elsewhere, a middle man steps in and takes profit, and matches the sellers request
The Arbitator doesn't add to selling volume, they just match volume that is already there.
Let me know if that answers your question. If not, I will happily post something more comprehensive... I am an Oil Trader (who also plays Arbitrage games) by day, so this is something I like to think I know about..
big shock here.
As i explained in my post, the internal market is denominated in convertible notes, not cash. And that means the buy volume on the internal market won't effect the cash price, only the exchange rate between convertible notes and steem. As i also noted in my thread, you can actually watch the price getting pulled down on the external markets with no movement at all on the internal market.
Its unfortunate that the whales (and their cheerleaders) are so obsessed with either making a quick buck or projecting an image that everything is alright that they are willing to ignore/cover up an obvious flaw rather than acknowledge and correct it.
If you want to take Ollie's advice, obviously thats your option. Just like it would have been your option to take his advice to power up right before steem lost 75% of its value. But ask yourslef this-- how far down does the price have to drop before you quit believing the cheerleaders. According to @hisnameisolllie 70% is nothing to be concerned about. Is 80? 90?95?99? I gotta wonder at what point (if ever) most people will start to question the propaganda.
As i noted in Rok's thread, I am providing proof and a demonstration of this tomorrow afternoon. you can read the details of that below.
Your buying 5-10k Steem, and then selling it to see what happens..? You net affect on the market is zero in this case.
I don't see how this proves anything. When you buy, you either prop up the price , or force it up. When you sell, you either keep the price at a floor, or it falls..
My point is that, the net affect of you action is zero. The same way the net affect of an arbitration trader is.
Well, buying and selling it a bunch of times, but yeah effectively.
What youre saying is true if both of the markets are denominated in the same currency. ANd if one of the markets isnt based on a pegged convertible note.
WHat it comes down to is that in two properly functioning markets the buy and the sell will cancel each other out. If one of the markets is less responsive they will not.
WHat i'm going to prove is that theinternal market is less responsive.
The hilarious thing is that after I do this and tank the price by half of however much is left of it by this afternoon, you'll be right back on here (along with the usual suspects) calling it a coincidence. Because to do otherwise would be to admit a there was something wrong, and lets face it, thats not how you make money on this site.
side note -- if you want to watch, i think its about to happen right now. you should see prices drop dramatically in the next hour or so
What were the results of your market manipulation play? What happened?
It hasnt happened yet, and may have to wait till monday. I ended up severely underestimating the volume of client payouts for this week, so found myself with a several thousand dollar BTC shortfall that i had to make up on LBC (at an absurd 7% markup)