RE: The Economics Behind the Steem Dollar Arbitrage..
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.