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.
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.
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.