As many of you Steemians have noticed the price of STEEM has been struggling- HARD! I have had many friends question the future of the platform and the STEEM token in general. There is definitely a sense that this is a sinking ship and some are jumping overboard already.

The silly part, or perhaps blatantly obvious, is that the price of STEEM tokens actually affects the activity rates on the platform. When prices are falling or staying relatively unchanged there is less interest in creating content and using Steemit in general. Makes sense right? As the monetary incentive decreases so will the desire to work and generate new content. So as the price falls so does user engagement, and thus a self-fueling cycle of disinterest and abandonment begins.

If you don't believe me then check out @penguinpablo where he graphs and presents all of the data in his posts so you can see direct correlation between price and activity. Be sure to show him support with an upvote!

So what is the actual cause of the price decline in STEEM? Like many projects that have struggled to take off there is not a single point of failure but a collection of failures rather. The biggest and most egregious in my opinion was their inability to penetrate new markets and a reliance on the STEEM/BTC pairing on the exchanges they do trade on.

For starters STEEM is only traded on 11 exchanges, if you count DEXs and smaller lesser known exchanges. The trading pair with the highest volumes is actually the STEEM/KRW (Korean Won) and then of course the STEEM/BTC makes up the majority of the rest of the volumes. ONLY two exchanges are trading the USDT pairing and they are both overseas (not including HBUS)... the major exchanges that allow US customers are primarily trading against Bitcoin.

WHY does all of this matter? Because right now everybody wants to accumulate Bitcoin and not STEEM. They want to sell their STEEM for Bitcoin because logic says that BTC is more valuable than STEEM- Bitcoin is the golden standard by which almost every crypto is measured. That combined with the fact that it has been getting immeasurable attention from every direction makes Bitcoin in high demand whereas a coin like STEEM, with its inflation and smaller community, is no match for it in a free market where BTC has had a 7 year head start.

Well surely STEEM does have some advantages over Bitcoin right? Of course it does but not in the store-of-value arena. What STEEM brings to the table is super fast, virtually free transactions (if you don't count min SP requirement), an @ name address system rather than ridiculously complex public key system, AND the greatest double edged sword of them all: LOW LIQUIDITY. What causes this low liquidity and why is it good or bad at certain times?

The STEEM blockchain was designed so you can power up your STEEM effectively staking it in exchange for STEEM Power. These coins are being locked up in user accounts thus preventing them from being on the market- so even though they are being counted in the total circulating supply they are not liquid and trading on the market. This accounts for roughly 2/3 of the supply currently then you have to account for all of the STEEM sitting in dead/inactive accounts. The remaining tokens are then hoarded by whales and exchanges, many of whom are using bots to trade. What you see as a result is a market that is extremely easy to sway especially when Bitcoin begins to move.

Now since Bitcoin has been continually growing for six months the price of STEEM has been struggling or falling vs the BTC pairing while remaining relatively stagnant vs the USD. This looks great on paper for people earning STEEM regularly but really hurts the investors of the platform who are watching just about EVERY OTHER asset on the market outperform it. If we had simply dumped all of our tokens for Bitcoin we would have fared much better! Hindsight is 20/20 though and we live and we learn.

In my next post I want to explore some more of the economic theories behind why STEEM is "bad money" and Bitcoin is "good money". This is why I believe we have seen a continual downward pressure on the market as the Bitcoin network strengthens and STEEM lags behind.

*Never invest more than you are willing to lose and always do your own research before making any investment decisions. I am NOT a financial advisor and this is NOT financial advice- this material is intended for entertainment and informational purposes only. Hit "CTRL + or CTRL -" to change size of chart.
(All pictures are free domain images created by myself with the help of Coinigy.com.)