Buy When There is Blood in the Streets - Perception, Framing & the Power Down Paradox
Introduction
Following the successful hard fork last Tuesday (December 6th 2016) and the changes to the Steem/Steemit economic system we have seen a decrease in the power down period from 2 years to 3 months.
This will inevitably lead to a sharp rise in the amount of liquid Steem in existence as we can see from the Power Down statistics courtesy of SteemDB.
This coming Tuesday (13th) we will see roughly 7 times as much liquid Steem coming from power downs as compared to last Tuesday (6th).
It is likely that this extra Steem will put a downward pressure on prices - that is how markets usually work. I have seen some people being quite glum and disheartened by this, particularly given the rises that we had in Steem prices in anticipation of the hard fork.
Let's take a look at some of the potential reasons why people power down:
Motivations for powering down:
- People who have to pay bills and basically have no choice.
- People who no longer belive in Steemit (or never did) and just want to exit - "take the money and run".
- People who want to cash out to buy back at a lower price and increase their holdings.
- People who are just testing out the system.
- People who are some combination of the above.
I see the exit of people under point 2 as being an advantage.
These people are draining the system and putting little back in. The sooner we get rid of them the better. We saw many of these same kind of people come in and cash out during the July peak.
Don't get me wrong, I don't hold anything against them but I just don't see these kind of people as beneficial to our long term goals.
As for the other groups their actions are very much dependant on the Steem price and general confidence in the platform.
For example people who have to cash out to pay bills will likely only cash out the absolute minimum if they believe the price will rise. However if they anticipate a future price fall they may try to protect themselves in anticipation of this by cashing out more.
It is a rational behaviour based on future price predictions.
Hence I think that some degree of turmoil is to be expected over the next few months. I don't think it is a need to panic though.
Crisis = Opportunity
"The time to buy is when there's blood in the streets."
-Baron Rothschild, 18th century British nobleman and Banker. Source.
Whatever you think of Rothschild or bankers in general this is a very good point. I also think that most of us realise that there is some truth to this.
I suspect we have all had times where crises and our actions during them went against the perceived norm of what was "sensible to do" and contrary to that wisdom we ended up profiting from those actions.
There is also the western meme (which seems to have been a misunderstanding) that the Chinese word for crisis is composed of the characters for "danger" and "opportunity".
The reason I think this took off as a meme is because it speaks to an essential truth about risk and reward that Rothschild was alluding to.
I have experienced it numerous times myself in the 3 years plus I have been in the cryptocurrency space.
The Bitcoin Example
The classic example of this is Bitcoin. There have been many times where it fell from an all time high and it seemed like it would never recover.
These are the times when the critics and naysayers wriggle out from their assorted hiding places to say "I told you so".
People start declaring it "dead" - if I had Satoshi for every time people said Bitcoin was dead...
Nobody Makes Money from "I told you so."
I remember people telling me I was "mad" for buying Bitcoin when it was $30 because it was never going to fall and would soon be under 1 cent in value. My response was that I would buy even more if that happened.
To be fair it easy for holders to give up and give in to this kind of thinking. Derision and the fear of "loss" are powerful factors which put psychological pressure upon us.
As social animals this kind of pressure as a powerful effect on us. It can profoundly change our perception of a situation.
That brings me back to one of my own favourite sayings which is an old English proverb:
"There is no reward without risk."
Those people that sold their Bitcoin after it hit the $1 dollar peak and fell are probably quite annoyed with themselves even if they did make a profit.
Ultimately I suppose it depends on what kind of person you are. For me it would be more troubling if I lost the opportunity to make $1000 into a million as opposed to turning that $1000 in to 1 dollar.
A Matter of Framing
Sometimes how you view a situation is based on how you "frame" it in your mind.
You may see a falling Steem price as a crisis and a reason to panic.
I see it as my best opportunity to become a Steem Whale.
I have my buy orders ready to go and suitably low. (Well I'm not just going to give my money away.)
Feel free to fill them.
Conclusion
Obviously what you do with your money and your Steem is up to you.
I don't have a crystal ball or some magic ability to predict the future.
I believe in Steem and Steemit and I see the future potential. That is not a guarantee of success though and we must all choose and act for ourselves.
I will not be powering down any time soon though.
Thank you for reading.
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6- To have more liquidity (but not necessarily planning to sell any time soon or at all)
The changes to the system in the last hard fork were designed to make holding liquid STEEM a viable option, with the gap in return between STEEM and SP narrowed enormously. This includes powering down and then holding the STEEM. I have been doing this for several weeks in anticipation of the fork and plan to continue post-fork.
Good point I hadn't even considered that. With the reduced dilution it makes it much more viable. I'm still hoping that people sell so I can buy more up at a low price but to be honest either way is fine. I have a decent amount of SP so if there is no significant fall I still gain.
@smooth - I've read that holding liquid steem loses value and conversely does not gain interest. I honestly do not have the head for numbers or market caps or things of such nature, but I am trying to learn. Can you explain how powering down and holding STEEM helps to narrow the gap between STEEM and SP?
The "interest" on SP is now very small, probably something like 1-2%/y (exact rate depends how much is powered up). That plus voting and curation rewards are the only differences between STEEM and SP.
Things were very different before the fork when SP earned "interest" of something like 150%/year. Holding STEEM rather than SP under those conditions was a huge disadvantage. It no longer is.
If you plan to just hold for a long term then it still certainly makes sense to hold SP given those advantages even though they are smaller (and I'm not rapidly powering down much of my SP, only a small portion of it) but the disadvantage is that it is locked up, can't be used for trading, and takes 1-13 weeks to access 7%-100% of it.
I'm a pretty poor person. My paycheck pretty much covers food and bills and that is it. I do sell SBD and STEEM that I make from my post, but I have NEVER powered down to do so, and I do not intend to anytime soon.
I do use SBD and STEEM to buy tools, games, food, clothing, VPN, etc. Things I'd normally not be able to purchase. I tend to buy most of those things while they are on sale so I manage to maximize how far I make this go.
So I am not someone who has ever powered down STEEM. I have sold the portion of my rewards many times. I have also intentionally powered up quite a few times using those funds if I did not have need of it at the time.
Thanks for sharing your experience. I certainly understand that not everybody can afford to hang on to all the steem/SD they earn. A robust economy should be able to deal with that.
That is a big show of faith. There are no guarantees as I often say but it could pay off big in the long term.
I am currently powering down for the first time since I joined Steemit, but only out of desperation (it is the holidays after all). I plan on stopping it after a couple of weeks.
Yes I heard you say in the podcast and I think that is fine. You have a family and you have bills to pay and it is that time of year.
Yep. Sometimes you gotta do what you gotta do.
Exactly particularly when you have other responsibilities.
I am still trying out the system. I envested in SP first and I was making 1800SP per month, based on 60SP per day just for voting. Now I make 4 per day (120 per month). I know this is because there is no interest being paid on SP. That's not a selling point any longer.
When I saw the had fork coming, I invested 1 btc in SBD and put into savings - it pays 9% supposedly (it used to say 15% returns). Twelve days later, and I have yet to see a dime. Also not a selling point.
So I make 1/15 of what I was making last month. I could either put 15 times more into my account ($45,000) or just power down and invest in 4 Dash nodes. For now I will see if SBD interest every comes and wait for the developers to make another extreme flip or flop in the rules we all have to play by here on Steemit.
I believe interest is paid monthly. Also, it is paid only when there is a SBD transaction and it's been at least a month since your last interest payment. If you don't see the interest in your wallet after a month, send someone 0.001 SBD and it should appear.
Thanks for clarifying. Yes interest is not paid out daily. I think it is easy to confuse it with the Steem dilution which occurs all the time. My SBD interest only occurs periodically.
I can sympathise but I suspect without the economic changes that 1800 SP per month would be worth a lot less than it is now. I suspect we would already be at 1 cent per Steem and falling by now. That economic adjustment was a necessary bit of pain in my opinion and has secured the future.
I know. Hard to say though. The price had rebounded out of the blue well before the hard fork was implemented. If the price goes into a dive again now, we are no better off having taken such drastic measures. I know the devs have the best interests of Steemit at heart. I just question their wisdom in making pendulum swings.
The reason the price rebounded was due to market sentiment. Like it or not you can't take speculation out of the equation. The best strategy is to make the most of it. The economic changes should bring more stability but nothing is ever guaranteed.
you're right that volatility in rules can be devastating. in this case, i'm a fan of the changes made in the fork. massive inflation and too long a lock-in period dissuaded me from investing more. Now my two biggest concerns are fixed and i'm fully bullish.
that said, the powers that be should be extremely circumspect in the future in making other major changes.
Yes absolutely and even when changes are necessary it is best to proceed slowly and with caution. Markets get spooked easily.
More liquidity = more volume = more trading = chances to profit = more investing?
Let me know where I should be trying to catch this falling knife lol, below 10 cents?
There is no way to be sure. I have some buys set at 1 cent or below but I will probably start buying once it goes below 10 cents. That is not advice though. You have to decide for yourself I'm afraid. You can reduce your risk by spreading out your buys over time. So if you have a hundred dollars for example it is better to buy 5 dollars worth every day over 20 days than just spend it all on a single buy.
Wow, it is nice to know where you think the "floor" is, I appreciate that a lot. I am sure we will have an idea by the end of the week. Some increased volume will be nice, that can help raise awareness.
Well I could be completely wrong though. Markets can surprise you frequently.
Sub 10 cents I see as a possibility, sub 1 cent not so much. Not sure anyone profits from a 2000% drop like that, but this is crypto lol
This is based on nothing though, just intuition. People that can look into charts and make fancy lines remind me of bone-readers lol.
Yes I agree:) Best to have some low orders just in case but it is unlikely.
Thank you for posting @thecryptofiend. Appreciate all the photos especially the whale and cuties at the end. Great article....bringing to mind....Keep calm and carry on. Very nice.
Appreciate your comment on a post regarding the fact that when it comes to photographs your preference was for them to be darker.....gave it a go and it is an improvement. Thank you.
Have you read the book.....Blood in the Streets...by James Dale Davidson and William Rees-Mogg? They have co-authored several books...another one......
The Sovereign Individual may interest you as well.
Happy Christ-mas. Cheers.
Thanks. No I will check those books out:)
I don't know much about markets, but my logic and experience with humans tells me there will be no selling and no price drop for now. And also it almost always go opposite way than expected.
That would be fantastic. Yes the markets have a habit of doing what you don't expect:)
I love the obligatory kitten pic at the end. Seriously though - I'm new to cryptocurrency but I've heard about Bitcoin when it first came out and frankly, I still don't understand how cash value is made from an algorithm - but I've still got the old mindset that fiat is the only way to (currently) pay my bills.
I'm definitely on board with Steemit and Steem with both feet. I wish I had money to invest, but I do have time and the ability to create content so I'll have to do this the old fashioned way.
When I started in July I had no choice but to cash out because it was literally buying food for the family. I hated to do it because this is an investment in my future. I believe that with all my heart.
Thanks for you perspective. I think the value of things like bitcoin comes from people agreeing that it has value. It is not much different from paper money. Another way to look at it is to say that it is backed by the value of the resources that are used to mine it.
I don't think there is anything wrong with that.
Quite an inspirational post; I like the way you think! That blood in the streets saying is one of my favorites about investing. Good words to live by. I have buy orders scattered all through the order book on Poloniex. I even have a couple placed near the absolute bottom of the book, because you just never know.
I've been accumulating REP as well, and was kicking myself the other day when those hackers or whoever sold & completely wiped out the order book. Just think of how happy some of those lowball buyers must have been. Sadly my lowest order was not low enough to really benefit much. Fool me once, shame on you. Fool me twice, shame on me. Now I'm prepared for anything. :-)
Thanks - great points:)
@thecryptofiend
Like you said - think long term. I don't know but from what I learned from experts - give it time to grow we're just minnows compared to btc but given a chance we could grow perhaps bigger than they are.
As for quoting the Rothschild - right choice though am not a huge fan of them - there is much truth in it.
I haven't powered down and actually I'd like to grow more given a chance to support as well. And if we think and grow rich .. I mean think long term - we'll make it to that hope of seeing Steem rise in value and hopefully one day we'd be able to use it buying stuff like btc does where I live. The group that made btc a huge success in being used to buy food, coffee, shoes, clothes, take out food and even pay the rent may take using Steem in consideration if they see it soar, too. And they are not skeptic about it cause - they started when btc costs just 5 euro. So, hoard Steem people!
Yes and few people are fans of Bankers like Rothschild but they did seem to understand markets.
Exactly.
@thecryptofiend - true I am not a fan of their descendants but that clan has really made it successful in their industry - so whatever he says - must be true.
Lol. When it comes to money I would say yes:)