A proposed method for evaluating the market price of Steem

in steemit •  last year

With the value of Steemit so closely tied to a subjective proof of work, it can be difficult to evaluate the current price of Steem. Is it undervalued? Overvalued? How do I know if it is worth investing more in the market? Or should I just HODL?

According to the Steemit 2017 Growth Plan:

Success of Steem depends on the size of the network measured in users. Marketing Steem IS marketing for Steemit. Every part of the ecosystem benefits from the growth of another part.

Based on this observation, the team at Steemit, Inc. proposed three additions in the upcoming months to grow the value of Steem:

  1. Build out communities within the Steemit platform,
  2. Develop methods for "effortless onboarding," making it easier for new users to join the community, and
  3. Design a mobile application for the site, enabling users to more easily engage with content while on the go.

Each of these three objectives is tied to adding more and more users to the Steemit community. Building out communities on the Steemit site will help with retention of users and encourage new content to be created. "Effortless onboarding" will make it easier for new users to joing the Steemit community. And adding a Steemit mobile application will do both - faciltiate new user account creation, as well as making it easier to create new content.

In other words, Steemit's growth plan is integrally tied to adding more users who actively create new content. This will enhance Steemit and make it more inherently valuable.

New Users and Active Content

While there are many other factors that affect the changing price of Steem (supply/demand, growing trend towards better content, positive/negative affects from other cryptocurrencies, etc.), the two aspects of Steemit that the company has chosen to focus on are:

  1. User growth
  2. More (and better) content

Both of these statistics are relatively easy to discover. I actively follow @penguinpablo's daily briefing. He reports on both of these statistics. (Now, it would be very difficult to evaluate how good content is, but we can certainly evaluate the overall number of posts being published each day.)

We want both of these values to keep increasing, and as long as they do, the price of Steem should go up.

However, to make our calculation easier, we can use a single metric: the daily active user. This is the count of users that are actively engaging with Steemit each day. It doesn't do us much good to evaluate the price of Steem based on users that have accounts, but never use them. We want to measure the activity on Steem, as the more active it is the healthier it is, and the healthier it is the more valuable it is.

A Simple Proposed Metric

Now using the above information, I suggest we take the current price of Steem and divide it by the number of active users. This gives us a specific value attached to each user.

Value = [price of Steem] / [number of daily active users]

For example, at the time of writing, @penguinpablo's last report was on July 21. From his post, the price of Steem was $1.5076. The number of daily active users was 22,688. This gives us a value of $6.6449e-5 per user.

The Data

The last couple of weeks provide an interesting time period to analyze. Steem's fall from over $2.00 to less than $1.00 was frightening for many. Since I am long on Steem, I wasn't too concerned (other than wishing I had more money to buy!). I think that it was a needed marked correction with all of the inflated cryptocurrency prices lately. But watch what happened!

The number of daily active users is taken from @penguinpablo's reports. The value of Steem is taken as the closing price from coinmarketcap.com.

DatePrice (USD)Active UsersValue
6-Jul1.8522,3488.27815E-05
7-Jul1.5219,7177.70908E-05
8-Jul1.6923,2957.25478E-05
9-Jul1.5321,2547.19864E-05
10-Jul1.2622,2615.66012E-05
11-Jul1.1322,4015.04442E-05
12-Jul1.3623,7035.73767E-05
13-Jul1.1623,0215.03888E-05
14-Jul1.0721,4384.99114E-05
15-Jul0.9521,8994.3381E-05
16-Jul0.918,2404.93421E-05
17-Jul1.1222,4854.9811E-05
18-Jul1.2523,1525.3991E-05
19-Jul1.1323,4534.81815E-05
20-Jul1.3622,6885.99436E-05

Imgur

Analysis

There is no crystal ball to tell you the "proper" value of each user, thus determining the "proper" value of Steem. However, from this graph you can see the relationship as Steemit, Inc. has represented the value. You can also see how the market has appraised Steem's value per user over time.

From this limited selection of data, it could be interpreted that Steem has a strong base of $0.00005 per user. During the last correction, it only broke this base significantly once, but adjusted itself soon after.

Using this same assumption, if you see the growing trend of active users as represented by @penguinpablo (Daily Report - June 21), the trajectory shows that we may be increasing our user active users within a couple months to 40,000. Using our $0.00005 base line, the inherent value of Steem would grow back to $2.00.

Imgur
Graph taken from @penguinpablo's report mentioned above

All of this interpretation, of course, is based on my valuation. You will need to decide for yourself what the inherent value of a user is on Steemit. But using the relationship as I outlined above may be a helpful tool (hopefully one of many!) for you to determine whether Steem continues to be worth investing in.

I am not a statistician by any means. If I'm missing something important, I would greatly appreciate hearing your thoughts!

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The more expensive Steem is, the more tempting it is to sell. I hope it stays cheap so I can entertain myself with powering my account up. I am a former gamer, you see. =)

yes, I hope it stays cheap for a few days for my accounts to activate and I can get a few on the market.

Thanks for the analysis.

Very newbie here, so broke much confusion