Last week i started a series of posts where I write about the conclusions that I have reached while studying the Steem blockchain from an economic perspective.
As I said at the beginning of that first post, I am an Engineer, not an Economist, so if you have more knowledge in this area than I do, and I talk some bullshit here, feel free to get my attention. The purpose of this series is to learn more, and to spread the knowledge that I acquired along the way.
And today we will talk about price and value
What is value and what is price
To speak of price and value of something, we must first have a clear definition of what each thing means. The perspective I use in my analysis is the business and marketing vision, because although they are connected, they are completely different concepts.
The wikipedia presents a very good definition of what comes to be the value of something (this was taken from the Portuguese Wikipedia, some differences may exists with the english wikipedia):
In marketing, the value of a product is the consumer's expectation of its benefits relative to the actual amount paid for the product.
During the purchase, the consumer realizes the value of the product by evaluating the following items:
the benefits offered by the company, in the form of products (goods and services) and the cost of the transaction (money, effort, time).
The comparison of these items generates the perception of the total value of the purchase.
Value is directly related to the benefit and expectation that the consumer has in relation to the product/service that he/she acquires, and it is something relatively subjective, since it is linked to non-tangible and individual factors.
Let us take as an example from the world of arts. A drawing made by your child (which is still a work of art) has immense value to you (some would say immeasurable), mainly because of the emotional connection you have with your child. Although, for an art collector, such a drawing does not present any value, since for him there is no expectation regarding the quality of the drawing, the artist's history, or a possibility of valuing the work in the future. For this collector, your child's art value is very low.
The opposite is also true. The above painting by Jackson Pollock may have no value to you, if you do not have much interest in art, but for the art collector, the value can be immeasurable.
The price can be defined at the cost attributed to purchase the product/service.
The price of something can be defined in countless ways, depending on the type of product/service, the cost of production, supply and demand of the product, and countless other models already created over the centuries.
The relationship between price and value arises when, as the price being a definition of the cost of acquisition, it appears at the moment that the price functions as one of the components of value definition.
The same wikipedia article defines that the value can be defined by the following equations:
Value = Benefits / Price or
Value = Benefits received / Expectations
So there is a relationship between them, but it is not the price that defines the value of something
Price and value of Steemit's flagship product: The Posts
This relationship here in the blockchain is very interesting and visible. Since the main product of Steemit's economic system is the posts (not STEEM/SBD currencies), it is around them that the value/price issue should be evaluated at first.
It is not necessary to browse a lot through Steemit pages to realize that there is a very large and constant discussion around posts that receive a very high price (reward). This discussion always revolves around questioning if these publications present a price that reflect their real value.
Unfortunately, I do not see a very clear way of solving this dilemma, since, as we defined a little earlier, value is something completely subjective.
And this is a fact that you should always keep in mind when browsing the Trending and Hot pages: The price of these publications does not necessarily reflect your expected value of the publication.
Especially when a part of the price can be bought through the bots, which is simply a marketing strategy because there is a cost for this purchase of votes.
The real price of Steemit's posts, in my opinion, taking away from the equation the purchase of votes, does not reflect the real value of these publications, mainly because the price attributed by each individual is relative to the size of his property (Steem Power).
But then we end up in a spiral, because the price passes to other consumers (users of Steem) a value attribution, generating a situation of posts that do not add any real value to the community as a whole (remembering that the value is a individual perception), end up representing the value of the platform as a whole.
Perhaps this is one of the biggest problems we have on the platform today: The discrepancy between the perceived value and the real value of the products (posts in Steemit), which may as well drive away those who seek to develop high quality content and alos potential customers (new users) who may consider joining the community.
And I believe it is this discrepancy that should be the focus point during discussions on the value of the platform as a whole, as I see this as the crux of Steemit's growth or death. (of the platform, as the blockchain might have a different destiny than Steemit).
Price and value of coins STEEM / SBD
The coins produced in the blockchain would be a by-product of the ecosystem, because as I mentioned on the previous post coins are the monetary allocation of the transactions occurred in the Steem blockchain.
The concept of value is not very different for currencies because it will be dependent on the benefits and expectations that exist around them.
However, the dynamics between value and price of the coins is completely different from the publications.
The value of STEEM and SBD
Leaving aside the question of inflation and the peg of the SBD (I will raise this question in another post), one of the most accepted theories nowadays as a reference of assigning value to a network, as is the case of blockchains, is the Metcalf's Law.
Robert Metcalf who was one of the inventors of Ethernet (local networks), defined that "the value of a communication system grows in the ratio of the square of the number of users of the system ", expressed mathematically as:
(n * (n-1)) / 2
This means that the value of a network grows exponentially as the number of users in that network increases.
The value of cryptocoins generally has an almost direct relationship with this concept, because as more people start using Steemit, the greater its value.
Some later studies show that there are some "flaws" in relation to Metcalf's theory, as an overvaluation of the value directly related to the number of users, but it is still a good reference for defining the value of the blockchain.
The price of STEEM and SBD
Here is the interesting part, as I see that there is a misconception on the part of the community and the "analysts" regarding the price of the coins of the Steem blockchain. These are two main points that I see very few people take into consideration in their "analysis".
1 - What moves the price is the volume of supply and demand. Just this and nothing more.
Many "technical analysts" I see here seem to want to provide a message that price will go up or down because it hit a certain point drawn on the chart and the lines that were drawn on it.
Pure and absolute bullshit
The only thing that causes the price movement in an asset market is the volume of supply and demand in one direction or another.
If the volume of purchase in the market is higher, the price will rise. If the sales volume in the market is lower, the price will fall. Simply this, not because of some supposed "quantum event".
Do not get me wrong. Sentiment, technical analysis, fundamentalist analysis, etc. all have their value in the market, but it is not the fact that the price has reached a line drawn to meet the expectations of the "analyst" that the price will change its direction. The price only change/continue the direction is if at that point the volume of purchase or sale is greater.
Technical analysis is simply a statistical treatment based on the past history of price movements, and when done well, it can increase the probability of an expected move. But just that: probabilities.
If someone walks around saying that their "analysis" is 90% correct, you should be suspicious. Scientific studies have already proven that the [highest hit rate ever recorded in predicted market movements was 68%](https://www.kiplinger.com/article/investing/T038-C000-S002-which-market-gurus -get-it-right-the-most.html).
So do not accept what the "market gurus" say as truth. Learn.
2 - STEEM is worth X Dollars
Take a look at the figure below taken from Coinmarketcap.
Except for the South Korean Won at Upbit, how many exchanges (with a considerable volume over $ 10,000), do negotiations between STEEM and USD?
None. Zero. Nada.
Thus, the price perceived in USD is directly linked to the price of BTC. If Bitcoin goes up, STEEM and SBD prices go up. If the price of Bitcoin falls, STEEM and SBD prices fall.
So it is always necessary to be very careful when talking about the price of STEEM or SBD is high, as it is completely dependent on the price of Bitcoin.
This can be easily seen in the image below, where since its launch on BITTREX, the pair STEEM / BTC lost 68% of its price, while Bitcoin gained 2371%.
What had a price increase was not STEEM, but the BTC.
While STEEM and the SBD are not traded for USD on the exchanges, great care is needed when talking about the currency appreciation. The link with BTC is currently the main influence on the price of STEEM and SBD.
I hope you have enjoyed this deepening in the concept of value and price. Like I said, if I said anything stupid, just correct me, that's all right.
If you want to know more about what I have learned in the world of financial markets, just go to Trading Passo a Passo