Why is the Price of Steem falling? Does it Matter?
Steem Price -40% in the last 3 Weeks - What does this mean for Steem(it)…
I have come across a number of Steemit users raising concerns over the falling Steem price, and have decided to address these concerns. Having reached Week 4 of my Steem Statistics Post, I have a interesting perspective on this, and one which I believe provides a very good illustration of what is going on.
Steem Price Action:
Now, in terms of $USD, over the past 3 Weeks, Steem Prices are down nearly 40%. This is a big decline, and worth while addressing. That being said, things are not that simple..
Between the 4th July and 14th July prices increased 1500%:
When you consider this, the recent decline in prices seems a little more trivial than first appears. There are a combination of factors that are contributing to this falling in prices, but the market getting ahead of itself is certainly one of them.Overall Steem Supply has increased 15% Over the past 3 Weeks:
This has a dillutionary effect on the value of Steem. All of this increase has gone to Steem(it) Contributors and Steem Power Holders, and although it feels like a gain, shouldn't impact the Market Cap of Steem. This means that in real terms Prices have fallen 30% Month on Month, not 40%.Bitcoin Prices down 12% in the last 3 Weeks:
Another consideration is that Bitcoin, which essentially the cryptocurrency benchmark, the same way the $USD is a benchmark to commodities worldwide, has fallen 12% through the same period. In light of the Bitfinex hack, the DAO debacle and the Steem(it) hack (which unlike the other 2 was solved with minimum fallout) I have noticed a broad sell off in my Cryptocurrency holdings this month. I believe that it is reasonable to consider this 12% fall in the real Steem Price Calculation.
If you agree with my deductions above, this takes the Steem price fall near to 18% in real terms in the last 3 weeks. This seems far more digestible than the gross headline figure of 40%.
What has caused this fall in prices:
One thing we will all certainly agree on is that, by whatever measure you use, prices have fallen. I believe there are a number of contributing factors to this market move…
Market Overshot
This is a good place to start. The market certainly got ahead of itself. Generally, as soon as FOMO (Fear of Missing Out) gets thrown into the human psyche, markets become irrational very quickly.
Was Steem overvalued?
I think so. At one point we stood around 10,000 users with a £300m market cap. This was not sustainable, and either user numbers needed to ballon (which they didn't quickly enough), or the price of Steem had to fall..
Supply
What is Liquid Steem: Liquid Steem is another word for Steem. Liquid Steem is Steem that is available for transfer/exchange/trade. As we all know, Steem Power doesn’t allow these actions, and this is where the vast majority of Steem is held. Liquid Steem is created by users either Powering Down or Converting Steem Dollars.
Users Powering Down or Converting Steem Dollars over the past 3 weeks have caused Liquid Steem, as a % of all Steem in Circulation increase from 2.84% to 3.96%. This doesn’t sound like much, however this actually represents a 61% increase in liquid Steem over the past 3 weeks. This is significant because, it is only this Steem which is tradable, and thus it is this which sets the price of Steem.
A 61% increase in supply in one month is always going to put prices under pressure.
This is exactly what has happened. Most of this increase has come from large accounts powering down. It doesn't take many of these users to begin to sell, in order to create an imbalance in the market. It is worth mentioning that, the increase in liquid steem will continue, but at a decreasing rate (in % terms), so we can expect this impact to diminish overtime.
Demand
Steemit is not mainstream by any stretch of the imagination. You only have to look at the trending list to see that the main focus of the user base is Cryptocurrency/Anarchy. This is not a problem, however I do believe it has began to limit growth in the short term. User number growth (based on weekly active users) is up 13% in the last 3 weeks. This number however, has began to fall this week, with weekly active users falling from 21,000 one week ago, to under 16,000 this week.
NOTE: These numbers are difficult to make 'heads or tails of' as changes to the Steemit ecosystem have directly affected bot's operating on the platform, which have thrown these numbers out. It is however easy to deduce that, user number growth has declined over the past few weeks.
This is certainly weighing on Steem prices. I think it will take some time to transition into a more board content base, which is needed to retain a larger user base. This is however, just a small growing pain in my opinion. The Steem community needs to start promoting more mainstream content in order to support user base growth in the medium term. Until this happens, this will stifle demand for Steem. The value of Steem is in the underlying network, and the level of difficulty to earn them as rewards. Increasing user base is thus key to increasing the value of Steem.
Dilution
I have already touched on Dilution a number of times in this post. Something for all Steem Power holders to bear in mind is that, in order for you to lose value in Steem Power over the next year, Steem prices with need to fall more than 70%. This is because, Steem Power Rewards are currently running at around 312% for the next 12 months. This is certainly a consideration for why Steem is under pressure too. If you have done the maths, it is not worth holding on to Steem for the long term. You either need to Power up, or Sell.
Summary
As you can see, there are a number of factors that impact the Price of Steem. I first of all don't think that the decline is anywhere near 40% in real terms, and if you agree with me that we are closer to 20% (for Steem Power Holders), this is not a significant decline in prices.
Cryptocurrency projects generally have an investor base with a very short term horizon, which has been the downfall of many projects. I think it is worth remembering that Steemit is still in beta and there is a long way to go. This is an exciting project with much upside potential, however it's going to take time.
If you really believe in Steemit, you need to do your bit...
Contribution, Curation and Promotion by all users will help Steemit edge closer to taking on Reddit. We need to all look to the long term aim, and as long as we keep moving towards it, the price of Steem will take care of itself.
With regards to my Price Prediction: I do think we will go lower over the next few days/weeks, the trend is strong and users continue to Power Down, which is increasing supply of the sell side.
This does not concern me, as my horizon is for the next few years. Let the weak hands sell their Steem, a couple of weeks of low prices won't kill this project. I still see 'right now' as a great opportunity to build a stake up in the next social media giant
While I'm new to cryptocurrency, I have a basic knowledge of how the markets work. Supply and demand are the name of the game. I see the potential of Steem(it), which is why I've been investing as much time and effort as I can to create, comment, curate. I'm a little fish here but the way I see it, I'm going to buy Steem while it's low. As much as I could use any extra funds in my bank account, a part of my brain keeps chanting INVESTMENT. Another part of my brain looks at it like Monopoly money so I can kind of play with it without affecting my current budget. And...what my husband doesn't know won't hurt him. :oP
I think it is a good time to buy in but I think the value will fall some more due to dilution. The day it will rise the steemit platform will be near a saturation point and by that stage anyone that wants in will be causing the demand for a price rise. So sit back and wait would be my advice. You will see the rise coming.
I accurately told my readers to sell at $1.36 if they had any Steem and there would be other opportunities. At $1.15, it's still too early and there will be plenty of time, don't worry. Let's not forget that this thing inflates at 100% a year, so for people like me, who are phenomenal in timing, there will be those "moments" to buy and don't worry, they're sooner than you think.
why is that smooth? point 2?
steem has lost over 90% since the ATH few month ago and I think that we are going towards steems All Time Low - at least this is the trend ..looking at the chart.
As an Investment it is the worst thing I have invested in the crypto currencies world. but as a social media site ..it's cool and I hope it will replace FakeBook one day :)
This post and discussion is obsolete as the economics of Steem were completely reworked at the beginning of December.
The reason SP didn't (and doesn't) inflate as the same rate as STEEM is that you get anti-dilution payments as an SP holder that offset most (or in some conditions even all) of the inflation. That is still the case, although the base rate of inflation is much lower.
I am riding your car @merej99, I feel and vision Steem taking off. How far down you think it will go? I am jumping in as soon as it goes up.
The price drop does not concern me for all the reasons you stated. What concerns me is the competition: will every minnow/flounder/small sea creature jump ship to the next blockchain based social media site trying to get in on the ground floor and build a following early? Being first is a big advantage since by the time new ones pop up there may be >200k users on steem and a large number of active ones, but user retention will be tough if people think they can do better elsewhere.
User retention is key @daut44, good point. Certainly something that should be considered by the Steemit founders. Some sort of a longevity reward could help with that, as long as it couldn't be abused by bot's...
:)
@hisnameisolllie
"This is significant because, it is only this Steem which is tradable, and thus it is this which sets the price of Steem."
Not exactly true, on Bittrex the Steem Backed Dollars are also tradeable.
Both STEEM and SBD can be bought / sold. STEEM is down while SBD is a steady.
I think this will help
https://steemit.com/steem-ideas/@dennygalindo/steem-idea-ways-to-increase-active-users-activity-lotto
Wouldn't a lotto cause an influx of spam? I seen this problem a lot with places like TSU and Rabadaba. People just post random junk. ANd sadly were rewarded for that behavior.
No all you have to do is use reputation score and/ or a minimum Steem power to eliminate bots and spam. If you spam every hour you won't get a reward even if you win due to posting limits. You should vote every hour though. Low reps aren't legible so wouldn't want to spam on small chance you win . Read the link.
Keep in mind that if anyone wants to min max on this kind of environment it behooves them to cross post the same content on as many platforms as possible at the same time. If a second page similar to Steemit were to pop up then it, in a sense, doubles potential profits. All the user needs to do is post the same content in multiple places.
As long as a place like this can maintain some kind of revenue then the smartest people will never leave.
Great article with valid points! Besides the question in your post title another one, rather unanswerable is:
When will the price of Steem grow?
No one truly supporting Steem and Steemit long term should be worrying about prices right now. The opportunity we have here is unprecedented, everyone can get money without having to put any in. Any value of Steem will be more than any other place where you can post your content and let's be realistic about it a bit:
Steem(it) is a few months old. Who's expecting USD, GBP or EUR price stability is being unfair? Those currencies have years of backing and utilization. Steem has already accomplished more than any other.
well yeah but it needs to actually be a winner long term for it to matter. you can't compare crypto with fiat...
Hey. I felt that the post is mostly oriented towards newcomers that have doubts about Steemit. They are generally new to the crypto world so thought to compare it with fiat so they can relate better. Using BTC or ETH doesn't change the idea of my point :)
Great insights. i have invested a lot of steem and continued to invest during the dips. already los 40% so i had to buy more during downward movements to make up when rebound happens.
@tjpezlo Where someone sees catastrophe, another sees opportunity :)
good entry point these days https://steemit.com/steemit/@tjpezlo/crypto-updates-trading-with-bollinger-bands
candle sticks just turned green for steem
I think everyone is watching the decline in price closely. It seems that allot of people are cashing-out to BTC, for example @stellabelle pays most of the anonymous posts in btc. So comes back to supply vs demand - not enough people buying (demand) currently
I don't know whether it's what you're saying what I want to hear, or the simple way you lay down your info, but whatever it is; I like your style, very easy decision to follow you based on this.
One thing I noticed you didn't mention was arbitrage, I read an article yesterday which claimed that the ability for quick arbitrage is driving the price of Steem down.
I'd love to hear your thoughts on this...
Thanks and I really look forward to your next analysis
Cg
I will take a look into this and consider a post. Thanks @cryptogee
Yeah, youll write a post about how its not a problem. And the whales will love it and upvote it. And downvote anyone who doesnt agree. BEcause anyone who sees a problem with the platform is "spreading FUD".
Then youll scratch your head and say "i can't understand why everyone thinks steem is a scam"
Cool thanks; I look forward to it :-)
Cg
The most important thing you said is all this anarchy and crypto currency isn't going to attract people interested in steemit as a concept and who don't care how it works, don't think crypto currency is awesome. This is my biggest worry. I know because I'm one of those people
When I joined, I was picturing something like reddit, I'd be on reddit but if I made a witty reply to someone I'd earn $0.50. Sixteen thousand active users is an insoler
community. Too small! Bringing in new users should be the number one priority.
At the same time, a lot of new technology is more successful if it targets a small audience at first before trying to scale. It's better to be great to a few people than mediocre to everyone. Steemit is designed like reddit, but that doesn't mean we'll necessarily have the same communities reddit does - rather, it makes a lot more sense to foster online communities that other sites are neglecting. (And yes, instead of adding more people in an individual sense, perhaps we ought to think about adding more communities.)
you right about the content. I am a crypto enthousiastic, BUT i do believe that the future of Steemit depends on more mainstream content. If you land for the first time on Steemit, and you see that at least 50% of the content is about steem itself or cryptocurrency, than i understand that the mainstream is overwhelmed. Also we need a re-design of the website, more attractive, and personal. It is all a mather of time.....
A big red flag I noticed right away is that there is no gaming or E-Sports section here. That might seem like a strange thing to notice but when you think about it. Gaming is the largest form of entertainment currently and is still growing. No healthy gaming section means a massive chunk of potential content has yet to exist.
Build a gaming community on Steemit.Chat - find people and invite them to a private group, there are many of these groups popping up behind the scenes - why not start or join one?
It's not a red flag it's a potential opportunity :)
@thecastle Interesting. This could be an good tag for yourself or someone else to promote...
The are many massive chunks of content that don't exist. I vote up some good gaming posts from time to time but there aren't that many yet.
Great post! Another detail I like to keep in mind is the "price" of VESTs in terms of STEEM. I have a screenshot of https://steemd.com/distribution on July 12th and it was around 211 STEEM for 1M VESTs. Today it's at 293 STEEM for 1M VESTs. The price of VESTs in terms of STEEM will never be cheaper than it is right now.
What that means is buying 1000 STEEM a month ago got you more influence on the network than buying 1000 STEEM today. 1000 STEEM today will get you more VESTs than 1000 STEEM a month from now.
That seems to be the only number that really concerns me. I'd like to see the growth rates of other social media startups (Facebook, Twitter, Reddit) in their early days as a comparison. If people aren't super, super excited about moving over to Steemit, it may have trouble overcoming the network effect of the existing platforms. I have friends and family that are planning to blog here, but it's just not a priority for them. Until more of their friends are here, they won't make the move (chicken: meet egg). Also, they aren't on social media every day, all day like many of us are. To them, it's just not that big a part of their life.
You should really do a post on this! This is something I suspect 95% of Steemians are not aware of (myself included until I read this). I think if more people were aware of this, they would be buying Steem and powering up now, rather than waiting to try and buy in at the bottom.
Thanks Tim, maybe I will. I'm looking for historical data on the change in the 1MV to STEEM conversion rate over time and I don't have it yet. I'll poke around though.
Good post. I agree most of the points.
I have a different data, one of my friend registered 41 days ago, she received 10 STEEM in SP, and now she has 13.75, it means 37.5% interest for 41 days. So I think it is a little bit more than 18.5% / month. (@torparaszt)
@spiz0r Your data is correct. I was using data from 4 weeks of Statistics here. My data does however represent 3 weeks, 21 days, come to think of it (Week 1 should be Week 0). I will make an Edit to make that clear...