Not Like the Others -- Why Steem Price Hasn't Come Close To Peaking
When I bought into steem (at 40 cents), I told several friends about it. I've made quite a bit of money investing in BTC and alt coins in the past couple years, but its actually pretty rare for me to recommend a currency to people I know. I've found that no matter how many times you caution your friends that you do not own a crystal ball, and that alt currency markets are inherently difficult to predict and volatile, there are always bad feelings when you give someone a tip and it results in a loss.
Most of the people i told ended up not buying in. Now, nearly 1000% appriciation later, I've had people ask me if its too late, and if the price has peaked. I don't think it has. In fact, I don't think its come close.
To explain why, i have to explain some simple economics.
The first thing you need to know is that cryptocurrency isn't currency. Its a commodity. In the simplest terms, a commodity is a fungible, easily produced item with utility that many people need or want. Coffee beans are a commodity. Wheat is a commodity. Precious metals are commodities. These things all have intrinsic value that exists outside of their market value. Because people need them to make coffee, bread, and jewlery.
Intrinsic Value Was the Key to Bitcoin's Appreciation in Value
Bitcoin was the first, and arguably only, widely successful cryptocommodity. Its intrinsic value was that it could be easily , irreversibly transferred over long distance, with relative anonymity and very little risk of fraud. People had incentive to buy bitcoin, because they could do things with bitcoin (like send money to relatives in china, or buy from silk road) that they could not do with the cash with which they bought the coin.
Market Value, Speculation, and The Search For a Greater Fool
Following the success of bitcoin, altcoins became a thing. Most altcoins had the same advantages as bitcoin when it came to transfer of money, but because bitcoin hit the market first and had already gained a great deal of acceptance(and because, for the most part, these alt coins could only be purchased by first buying bitcoin then exchanging it for the altcoin), these features really provided no intrinsic value.
Many of these coins attempted to differentiate themselves from bitcoin and establish intrinsic value by offering features not found in bitcoin. With darkcoin it was better anonymity, with litecoin it was better decentralization through ASIC proof mining. With ripple it was... uhh i don't even remember... it might have been faster transactions. Ethereum, bitcoins current rival, has smart contracts. But none of these things had enough real value to attract a significant amount of buyers. Aside from the DAO hacker, no one has ever said "i need to do XXX transaction, and bitcoin just can't get the job done, ima gonna go get me some Ethereum/ripple/stellar/whatevercoin"
Fortunately for these currencies, there is another kind of value. Market value. Unlike intrinsic value, which is realized by a demand for some specific utility, market value is simply determined by how much market participants are willing to pay for a specific item, regardless of its utility. Why would people pay for something that they know has no utility? Because they believe that others will, at some point in the future, pay even more for the same intrinsically worthless item. This is called the greater fool theory. Paying even a foolishly high price for an intrinsically worthless item is justifiable so long as you can find greater fool willing to pay an even higher price in the future.
The Intrinsic Value of Steem, The Coin of the Attention Economy
Almost 20 years before the internet was a thing, Herbert Simon described the fundamental notion of attention economics, which would become the basis for everything from advertising to SEO, to social media to netowrk spam filters.
"...in an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it"
That was published 1971. When spam just meat in a can.
Steem Power is a way to direct others' attention. It has a utility that no other coin has. Not bitcoin, not ethereum, not anything. Its a way to reward (and expose) content. And its a real utility, with real intrinsic value for which there is a real demand. When people buy things like SEO or Social Media Marketing or banner ads, theyre buying the very same thing utility, indirectly, that steem offers directly (for now, just on this site).
Digital advertising is a 60 billion dollar a year industry.. Social network advertising is a 23 billion dollar a year industry. And all of these things attempt to manufacture the intrinsic value that is inherent in Steem power. Moreover, these are exceptionally saturated markets, and the moeny spend only indirectly buys the type of utility that Steem (through the purchase of SP) offers.
Screw you! We Want Numbers! Tell us Steem is Going to Be Worth More Than Btc by the End of August!
Thats a whole other post i think... there are a ton of variables mainly related to where this site goes.
Thats mainly dependent on how many users are on this (and other steem) sites in the future. A big question is how well steem driven sites can integrate and feedback to and from with other major social media outlets. Though im sure dan, ned and all the whales want to look super pretty, i suspect that their understanding of this is why all of these youtube-ey makeup related posts are getting so reliably upvoted. The type of integration where steem power can generate youtube and FB likes as well as steemit exposure is what could potentially shoot the market cap through the roof.
Personally, right now i think its too early to tell precisely where the technology is going... i think a 500M marketcap the point where i am going to take a serious look at overvaluation
I think the real key to it's success is taking something that is so widely used by a community of everyday people and saying, "Hey you, you know you have been screwed by all these companies right? You know that you are working for them and they are making money off of you right? Well we want to let your voice be heard, we want you to make money for creating amazing content like you already do, we want you to inform people and make people laugh, and make people think you are making a great community." There was also a great idea by a poster that if just one youtuber directs his videos to a post he did on steemit, not only could he make a lot of money from 100,000 people joining steem and giving him 1 up vote, we can also benefit from the huge influx of new users. And not to mention, one view on youtube gives user's fractions on the dollars of what they earn for google. Here, the community rates their content and tells people that they deserve an equal slice of the pie. I think streamers, you tubers, and other huge influential people could make tons of money for something they usually don't make much money on in comparison. I wish I could cite the original post, but I only gave my ideas generated from that post. If anyone has the original post please feel free to reply! Great post!
I like steemit as a concept (though i think it barely scratches the surface of steems potential) but i don't really buy into all this "power to the people" stuff.
At the end of the day, people are getting paid more on steem right now than they would on other venues because a massive premine gave some of the original developers and miners a huge amount of steem power to invest in attracting good content.
Yeah, its awesome that people are making so much right now, but its an artificial stimulus that will eventually run out if its spent too haphazardly. I don't think anything is wrong with it (on the contrary, i think its a great strategy) but wrapping it in the populist flag and pretending its something that it isn't, will, i think, be ultimately counterproductive.
Actually if you read the white pages you would know that steem is hyper inflated. There isn't some premined amount set aside for voting or others. Each year the value of steem will halve, if it stayed at the current amount of quantity demanded and supply demanded.
You also gotta keep in mind at the beginning people thought one guy owned bitcoin and was gaining all the money which kept people from investing. They believed he could just "write code" to change the system and have everyone lose their bitcoins and have himself gain all the bitcoin. If this system is just controlled by the few, then the faith in steem will fall and the few will fall with it. So it is in the few big whale's interest to invest in everyone else and allow other's to rise up and have a loud voice.
this is from the april 1 announcement of steem on the bitshare forum.
So yeah, steem power was premined. All of those giant balance steem power accounts that can reward thousands of dollars with one vote have that power because of premined steem power.
I don't have a problem with this. Like i said, i think its good for the site. But at the end of the day, youre only paid more than you would be by google or youtube if one of the founders uses his massive premined voting power to reward you because youre somehow seen as beneficial to the site.
To give you an idea of what you say doesnt work, it would be exactly like saying bitcoin is inflationary because mining causes an increase in the money supply. This can be potentially true, but at the end of the day its not the primary driver of price. In fact, the most rapid increase in bitcoin value was when during the time when the daily increase in supply was largest (be percentage). The primary driver is not the increasing supply of money, but increasing adoption causing an increase to the reasonable value for market cap.
If increased supply meant decreased price, we would see currencies like bitcoin with stable market caps, increasing supplies and decreasing price... that simply isnt the case.
Here is a snippet from the white paper:
"STEEM is constantly increasing in supply by 100% per year due to non-SMD incentives. Someone who holds STEEM without converting it to SP is diluted by approximately 0.19% per day. While the rate may appear high, for transactions that take less than 10 days, it is still cheaper than credit card processing fees. Furthermore, the daily token creation is insignificant next to the daily volatility.
Someone who buys Bitcoin or any other cryptocurrency and sells it 10 days later could easilylose3%ormoreduetopricefluctuations. SomeonewhobuysBitcoinandthensells it the same day will usually pay more than 0.4% in market fees alone. In other words, the inflation rate is effectively insignificant during the period of time the typical individual will hold STEEM.
The majority of inflation is actually an accounting artifact rather than true reallocation of wealth. 90% of non-SMD inflation is distributed back to existing holders of STEEM
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proportional to the STEEM value of their SP balance, making inflation more of a “split”. Only about 10% of non-SMD inflation redistributes ownership in the network."
Anyone can mine and use the steem to promote the network, but understand that is not how the system runs.
We've reached the depth limit, so im replying to my own post.
Its pretty clear that you don't understand what youre reading. What you quoted is a great explanation of why inflation is not a significant factor when holding steem.
Yes incentives increase the supply of steem (as free and as steem power), and thus, theoretically decrease the value (provided the current market cap is a reflection of the real value of the currency as a whole)...but it gets basically (mostly) distributed back to the people who had it in the first place.
ALso, though it doubles every year, its a cycle because it also splits into 1/10th after a time... ultimately, the supply is a wide but fixed range.
Interesting. So the rich get richer is what you are trying to say? And you mean that steem power will not be affected by inflation? If the inflation doesn't pay for the steem, where is it coming from? I thought our posts were being upvoted from a percentage of the miner's income.
Do you possibly know when it splits? Is there somewhere in the white papers it states that?
I think the yearly double comes from interest earned on steem power, and accrues incrementally. It continues to double at a rate of one double per year until it reaches 10X, then it cuts down to the original levels. SO if you start with 100 steampower, youll have 200 after a year, 400 after 2 years 800 after 3 years.. then when it gets to 1000 some time in the third year. it reduces back to the initial 100
Im not sure how you protect yourself from the 1/10th splitting... maybe by powering down.
Your problem with understanding inflation is that there really is no inflation. That's a term that applies to money, not commodities like Steem. I really kind of wish the white paper didn't play into this as much as it does, but i think the founders were trying to address objections they knew the crypto-monkeys on bitcoin forums were going to bring up.
incidentally, i wrote up a post about inflation here https://steemit.com/steem/@sigmajin/omg-inflation-the-sky-is-about-to-fall
I'm reading the discussion between ungratefulchump and sigmajin and wondering how on Earth normal people are supposed to understand all that stuff and make financial decisions about investment with STEEM?
Some will be put off by the gobblediegook, while others will see the complexity as a red flag, smoke and mirrors. If STEEMIT want people to buy more STEEM and SP, they really need to show people whats going on, in a simple, elegant, meaningful way. And no, a "whitepaper" doesn't count.
Awsome article dude, come on people this deserves more upvotes!
thanks for the kind words... i think im too wordy and too bad at marketing to be a really successful poster here. Im sure sooner or later someone will take my content, put some animated giffs of a dude in makeup in it, and make $20K
Its all good though im making plenty of money investing in steem, i don't have any illusions of being the next @guerint... im just posting more to write and get my thoughts down than anything else.
Just keep posting, that's what i'm doing. I too am not the best at some aspects of writing, but i believe with passion and perseverance people will eventually take notice of us minnows :P
i think the real key to standing out is photos and pictures, if you need tips for your next post don't hesitate to ask me, i might not be the best person for the job but willing to help :)
I'm not really a terribly attractive person. So if there are photos of me, theyll probably do more harm than good.
In a wider sense though, theres so much empty-calorie clickbait doing so well right now, i would rather dress in ashes and sackcloth, and get people interested in my ideas, just for my ideas. Just to maybe show that it can be done.
Steem on!
Incidentally, when i posted the above i assumed that i wasnt going to get any significant blogging reward for my post. Thanks mainly to @dantheman i made like $500 on the post and one of the comments. And i got 119 likes, which is pretty cool... my first decent blogging reward
Steem is still evolving. And its hard to say which direction that evolution takes us with it. All other major social media sites have evolved to be what they are today. Who knows what the whole Steem scenario will look like in a year or even 6 months for that matter.
My only hope is that it can grow into something bigger, better and more beautiful. Just like a butterfly evolves from a caterpillar. Steem today, is like a caterpillar. Who knows when the butterfly is to come.
Very interesting read. Keep them coming!
i tried buy, but in my country is hard buy this :C, really, you have good luck.
ill be honest with you, when i got in on this coin, i was really busy with a bunch of other things, not really monitoring the crypto boards and i basically found out about it when i misclicked on coinmarketcaps and sorted the coins by volume. So yeah i basically backed into 1000% return on $10K. I guess everyone's entitled to some run good once in a while
I think it's a bit overpriced because you can't mine on windows. I tried to and ended up getting to the point where I was told to install linux.
Thanks for the cryptcommodity clarification. Learned a few things with this read.
This is a really great post. My only concern with Steemit would be if the information-filtering powers of the Reddit-like features somehow got lost because of inequalities in SP holdings, i.e, you end up with a 'promoted posts' problem where people get driven away from the network because it starts filtering for the tastes of crypto Bill Gates, rather than a wider circle. Definitely want to dig into the economics of the white paper some more.
Great post.The concept of the greater fool theory is incredible,ive never heard of it.Also great job on explaining the concept of how cryptocurrenies should be called crypocommodities;makes it so much more clear when explaining it to people