Steemit! - A Speculators July 4th Trading Strategy

in #steem4 years ago (edited)

Steemit! - A Speculators July 4th Trading Strategy


I've been on this site for a few weeks now and what really piqued my interest, like quite a few people I imagine... were the little dollar signs in the bottom left corner of each article. We're all used to hashtags, emoji's and likes plastered in that general area... but dollars? Whats going on?

A journey began, 'Why did this get so much money?', 'This stuff is actually pretty damn good', 'Where's the money coming from?', 'This could be a great creative outlet', 'What opportunities are available?'.

I've been a professional trader in the futures markets for the last 5 years, before that I studied Economics at uni and I've been active in cryptocurrency's since 2011. I'd like to think that after spending 20+ hours reading over posts on Steemit and the whitepaper that I'd have a better background than most to fully understand Steemit - it seems I'm just as stumped??

removing the veil of smoke and mirrors....

In order to properly speculate or trade a market you need to understand the behavioral characteristics of the market participants (the personality of the market) and, additionally the structure of the market. In terms of behavioral characteristics I think nearly every market participant will want to 'see if it works', and see if they can actually take money out, so there will most likely be selling pressure.

market structure

From my understanding the payout will be 10% of the market cap of steemit, which currently stands at approx $16m. 75% of that will be allocated in vested Steem Power and the other 25% will be released as Steem Dollars. So the payout that hits the markets will be approx $400k as the market cap stands now. As you can see from the image below the volumes are tiny for something with such a high market cap, around $6000.



Below is the order book for bittrex, which has the highest volume, as you can see the sum of all the bids is only equal to 14.248 BTC which is currently worth around $10,000. Unless there are some hidden orders in there, someone could send 14.248 BTCs through and cause a flash crash wiping out all the bids. That's only $10,000 dollars, whats going to happen when $400,000 all of a sudden comes into play?

Strategy #1 - Those receiving small to medium payouts

On the surface it looks like there's a shit storm brewing, however it's a little more complicated than that. Once Steem Dollars are released they will be worth a dollar, plus interest, regardless of the price of Steem, to a point. 

I believe they will be worth a dollar to the point where the value of Steem is around $0.05. Rationally the price should stay above this level, plus some kind of premium based on the possibility of future returns and the 'power' that Steem Power gives you - an interesting post from @hisnameisollie highlights this quite effectively.

https://steemit.com/steem/@hisnameisolllie/steem-it-s-all-about-power 

I think the price of Steem will continue falling now and in the first week of payouts, the market is too thin (illiquid) to sustain any kind of volume.  In terms of probability and given the structure and behavioral characteristics I talked about above, this seems the most likely outcome.

A good strategy for someone receiving a payout would be to hedge against a potential fall by going short Steem prior to the payout and continue holding short, cashing out their Steem Dollars into Steem and then selling Steem into BTC. However I don't think this is possible, on poloniex you can short a few of the crypto currencies on there, it does not look like an option for Steem at the moment.

So what other option is there?

If I were receiving a payout then the only rational thing for me to do would be to wait. Steem Dollars will be worth a dollar up until the Steem price is around $0.05. It takes a week to convert into Steem and the price you receive will be the median of that week, If prices have dropped (they most likely in 'anticipation' of an increase in supply) then the price you get will be less than a dollar per Steem. 

It makes no rational sense to get out on the 4th of July when the over eager and those that are 'testing' are unloading, you will most likely be punished financially for it. 

The time to get out is when rational speculators are getting in at a point they think is value and the price of Steem is rising or at least relatively stable.

Strategy #2 - New speculators

I fall into this camp, I'll be waiting for the price to spike artificially low. I think it will slowly grind down until the 11th of July when the first releases of funds come out. If it's been pushing down at that point then those that decided to cash out on the 4th (terrible idea) will be looking at a price that's lower and that will cause more selling pressure as they try to stop any more losses. I'll initially get in then when the carnage is potentially highest.

Strategy #3 - Whales

I think around this time there will be posts where people are regretting getting out too soon and others that have held on. The price may have reached a fair value or may be going up. It would be in the whales best interest to vote on posts rewarding those that have held on, bringing more attention to the fact that holding Steem is a long term game and not a short term get rich quick scheme. It's a delicate balance and the whales know this, they may even help to support the price as they exit some or buy lower to have more power.

What I missed out (anyone who can correct me on this would be appreciated)

  • Steem Dollars to BTC. If this can occur instantly then the 1 week wait is irrelevant and you can get out for the exact Steem Dollar value. But why would someone buy something that will never really go above $1 but has the risk of being worth much less? - if the value
  • Steem Dollars to Steem on the internal market - instantly transacted
    • Aren't these the same thing essentially? Creating Steem Dollars is essentially printing money from Steem?

Anyway, hope this was of some value to someone. These are only my opinions and what I think the general probability should be in my head based on the limited information I have.


:)

EDIT: Why would someone buy the Steem Dollar? - As ned pointed out below, it pays 10% interest. 

It could also be used in volatile crypto currency trading, however it's not risk free, if the value of Steem drops below $0.05 then Steem Dollars will be worth less than a dollar. However this looks like a pretty strong measure to ensure demand and to take on the added supply tot he market at payout times.

Sort:  

Below is the order book for bittrex, which has the highest volume, as you can see the sum of all the bids is only equal to 14.248 BTC which is currently worth around $10,000. Unless there are some hidden orders in there, someone could send 14.248 BTCs through and cause a flash crash wiping out all the bids.

Actually, they can't. There is 14.248 btc in the orderbook, but all of that can't be bought on the market price. The sum is 1 0966 480 steem, and that is much bigger than all liquid steem. So it is true that a whale can bring the price down significantly, but it's impossible to bring it down to zero.

A good strategy for someone receiving a payout would be to hedge against a potential fall by going short Steem prior to the payout and continue holding short, cashing out their Steem Dollars into Steem and then selling Steem into BTC. However I don't think this is possible, on poloniex you can short a few of the crypto currencies on there, it does not look like an option for Steem at the moment.

If somebody thinks that steem price is going to fall, and there is no possibility to short it... then what's the next best option? Of course to exchange it to either fiat currency or to some price stable cryptocurrency. And guess what? Steem dollar is ideal for that!

So it makes sense to save all your SD if you think that steem price will go down. And on the other hand, if you happen to have steem and think it might go down, it makes sense to buy SD with it. That can be done easily and for free in the internal exchange. This has one really big advantage: the money stays in the ecosystem. Users don't need to sell it for bitcoin so it doesn't affect the price.

And then there is the interest. It can be adjusted by witnesses, but apparently it's starting with 10 % which is huge! Make easy money just by holding SD. I wouldn't be surprised if there was big buy pressure for SD because of this.

One really interesting piece in this puzzle is the liquidity reward. It should make sure that there is always at least some liquidity in the internal market. That is a strong force to keep the Steem dollar worth one US dollar.

July 4th is big unknown so probably there is a lot of volatility. It means that active traders will have a lot of arbitrage opportunities.

Thanks for the heads up on the sum of all the Steem bids, I didn't realize. there must be some incredibly low ball bids in that orderbook.

I agree, I think the rational thing for someone with Steem to do now would be to buy Steem Dollars as soon as they could to protect against any price move. I haven't yet taken the plunge, but will buy if I'm right on the move down after 4th July.

The 4th of July is unknown, it's also probabilistic I'm not predicting any outcome, just what I think the most likely outcome will be. There's also a case to be made for a huge increase in the price of Steem, I'll have to trade that differently if it's the case.

Am I right in thinking that there is no way to sell SMD outside of Steemit?

CG

I thought we killed the "M"?

We did, but I dunno, I kinda like it :-)

CG

AFAIK Blocktrades will be implementing it to their system. Maybe it will be on Bitshares too?

So it makes sense to save all your SD if you think that steem price will go down. And on the other hand, if you happen to have steem and think it might go down, it makes sense to buy SD with it. That can be done easily and for free in the internal exchange. This has one really big advantage: the money stays in the ecosystem. Users don't need to sell it for bitcoin so it doesn't affect the price.

Now that I thought a little bit more about this... Of course it will affect the price if people are selling Steem. It signals the markets that people value SD more than Steem. But it doesn't directly have effect on BTC/Steem-pair where probably most witnesses are getting their price information.

Anyway, it's great if the money stays in the ecosystem. This doesn't happen when people sell their Steem for BTC. It will be also interesting to see how much traders are going to use SD/BTC markets.

Wow, the thing you are missing and perhaps the most important thing is this: once you power up you have the ability to upvote and bring economic rewards to creative, intelligent people who might be impoverished and in dire need.
It is for this reason that I've decided to power up everything and cash out nothing on July 4. To be able to effect this kind of a change in a global scale is unprecedented.

You're completely right about that, it's one of the inherent values of Steemit.

You're also probably making the best financial decision at this stage. Looking at the mechanics of Steemit, it will take a lot to make it fail, the market cap of Steem only needs to be as large as the last payout for it to be successful - I might write a post on that next.

Forgive me if I didn't mention the other aspects of Steem and the allocation of resources, I had my speculator cap on :)

Speculation for the sake of speculation is perhaps......

It's really not like that. 'Speculator' is almost a dirty word, it brings up images of a gambler or someone who does not deserve the rewards that they may gain. Being a speculator, a professional speculator is really something else. It's about understanding all the component parts of what you're speculating on, understanding at a deep level what you're getting yourself into. Assessing the risks and rewards and pulling the trigger.

By deciding that you'll hold onto your stake and powering up you're essentially a speculator, you feel and understand at a deep level that's the right thing to do. I'm one of the nice speculators, I promise :)

I never said anything about how I feel about a speculator. I left my sentence open to find out what you think.

What I desire more than anything else has nothing to do with money actually. I'm here for a reason that no one has yet perceived. I love a game that requires intense effort and an insane amount of knowledge. Let the game begin....

I evidently fell into your trap :O

'I love a game that requires intense effort and an insane amount of knowledge'

That sounds very similar to trading to me. It's all about the journey, not the outcome :)

I am totally new here and trying to understand how it works. what does" power up" means?

Converting your Steem into Steem Power. Go to your wallet (in your profile). You can see STEEM. next to it is a drop down where you can convert it (power up) to Steem power - which gives you more influence in the site. Lots to learn here. but check out the posts about it by people like @donkeypong

I suspect it will be messy for the first few days and weeks. Then we'll gain some stability and liquidity.

I think the only sensible thing to do is to power up for the majority of what you earn. And keep contributing to steemit. And if the price dips substantially - buy some more. The network keeps breaking it's records while adding new users, which gives the currency upwards momentum.
https://steemle.com/charts.php

Plus I spend a lot of time here. I want to influence and reward good content - some of which is really outstanding, given the relatively small user base so far.

Pretty much what I plan on doing, maybe a 90-10 split 🤔 ahh fuck it what's the point in keeping 10%, 100% powering up! Im all in!

But why would someone buy something that will never really go above $1 but has the risk of being worth much less? - if the value

The blockchain is set to issue 10% interest

You're correct, I'll add that in. Thanks.