The long-term falling trend of Steem price can have many reasons. One of them is the surprisingly high Steem inflation.
In 2016, at the very beginning, Steem inflation was very high. The number of Steem coins in circulation, the supply jumped to 229,607,487
on the 31st of December from 4,413,860 pieces on the 18th of April 2016. That means it was 52-fold higher at the end of the year than in the first days of inception. The “genesis”.
Measures with temporally effect
But then, measures were taken, and they stabilized the inflation (and also the price) at the end of the year. The blue paper of Steem wrote:
The rate that new tokens are generated was set to 9.5% per year starting in December 2016, and decreases at a rate of 0.01% every 250,000 blocks, or about 0.5% per year. The inflation will continue decreasing at this rate until it reaches 0.95%, after a period of approximately 20.5 years.
But, as you can see on the chart, the inflation stayed only temporally on relatively low levels. It reached ten percent p. a. again in summer 2018, and jumped above 20 percent again in last November. (As price also fell to new lows.) Now, in July, we see a new jump in inflation and a new price fall. Difficult to doubt a correlation, connection between the two.
For comparison: Bitcoin inflation is approximately by 4 percent p. a., American and European inflation rates, mostly, between 1 and 2 percent in last years.
Not always so bad
Money supply growth is not always causing inflation. If the “demand” for the money is growing with the supply, the price of the money – the value in other currencies, or gold, for example – can remain stable. The problem is when the supply of the currency is growing, and the demand stagnating or surging slower than the supply.
(Update: On the supply side, the inflation is also only one of the main reasons. Overall crypto-sentiment, selling pressure from Steemit Inc., whales or other investors, cost covering from witnesses also can influence the price.)
So, I’m not saying inflation is the only cause of the low Steem prices, but maybe one of the basic, important factors. I will try to figure out the reasons for the high Steem supply growth in the next days. Follow me.
(Steem inflation is not inflation in reality because inflation means prices surging. The data on the chart is more the year/year supply change. The change of the number of Steem coins in circulation. But all are calling it inflation, so do I. I calculated the Steem supply dividing the market capitalization with the price.)