This Might Be Obvious To Some, But It Wasn't To Me - How Powering Down Can Actually Increase Your STEEM Power Over Time
A Quick Explanation...
I've been banging my head on the wall for the last day because I thought I had found a fatal flaw that could possibly be the Achille's Heel of STEEM. I was wrong. (Apologies again to @liberosist for being testy.)
I formulated that "Powering Down = BAD" because I had seen a few posts criticizing whale-size holders who were doing so. But for both whales and small-time traders like myself, I believe there can be substantial profit who are actively trading both the internal Blockchain and external markets by always (or almost always) powering down.
I suspect the Whales are intentionally leaving this opportunity open to enable outsider non-STEEM traders such as myself to take advantage of the spread - and to demonstrate the value of investing in the ecosystem. It worked to "hook me in," and now that I understand the Powering Down feature, I'm even more excited. I didn't fully understand how it worked, so I thought maybe someone else could get use from this.
Why I'm Powering Down
I already knew that Powering Down granted yourself a weekly stream of STEEM liquidity that you can use any way you want at roughly a rate of 1:104 per week. But I didn't know that while you power down, your SP continues to grow until the payout is made.
Combined with the rewards you get that you earn from making posts and replies on the regular, that means even while you power down, your overall share of the SP reward pool can continue to grow upwards. That's even before taking into account the fact you can trade the STEEM markets to net additional STEEM, as I talk about below.
The reason I recommend that you consider powering down - particularly if you're active daily on STEEM and pay any attention at all to the markets - is because there is such a large discount every time I check the market for SMDs. I can't resist buying $3.40 worth of exchangeable value at cost of $2.80 to me.
How To Use STEEM To Earn More STEEM...
If you're looking to increase the net amount of STEEM you hold over time, there's an opportunity in using your weekly STEEM Power payout to purchase discounted SMDs on the internal market.
This is what I'm doing. Once you purchase SMDs, immediately convert some or all to STEEM using the built-in feature. A week later, your STEEM will arrive in your account at the current open market prices.
After the conversion takes place, you'll have ended up with more STEEM than you have started with, unless there was a substantial price increase over the next week that erases your SMD discount.
(If current trends hold and no new liquidity rewards are added, it seems likely to me that SMDs will continue to remain at a discount to USD.)
But even if there is a huge price spike upwards, you can simply sell your converted STEEM on the open market, hold in Bitcoin, and then buy back in after the price retreats. (Even the most steadfast Whales and Holders understand that prices are fated to swing down occasionally.)
Here, There is Opportunity Everywhere
If you're able, in my humble and only somewhat-educated opinion, you should consider powering down and using your liquidity however you best see fit each week. The only requirement to take advantage of this opportunity is to make sure you're around to trade the markets at the end of the 7 day SMD conversion period.
Some weeks, it might make the most sense to simply re-invest your payout back into more STEEM Power, particularly when you don't see any trading opportunities for SMD on the internal market. From my assessment there is very little risk or cost in doing this.
This is obviously my personal opinion and what I'm doing, and this advice could end up in a net loss for you - but I honestly can't see how you could lose much here over the long-term if you're paying attention.
Maybe I'm missing something, but it sounds like you're saying that "you can't lose by day trading," which, if that's your message, is very definitely incorrect.
Which of the trades that you're making money on doesn't depend on one of the following:
I said it would be hard to lose much here over the long-term, with the caveat that it would work only if you're paying attention and don't hold the STEEM in your account.
I think the trade mentioned above would likely be profitable for the foreseeable future, even with the extreme price swings that there have been.
Continuously using your weekly payouts to purchase SMDs (for as long as they're being sold at a reasonable discount to open market rate) and then converting to STEEM would yield a net increase in STEEM over the long-term. Given the opportunity to purchase SMDs internally at a discount to the open market rate, I would almost always do so, personally. Of course, I would also allocate some of the profit to SP over time to increase those weekly payouts.
My bigger message, though, is that I don't see a reason not to be powering down at all times to take advantage of market distortions like the ones happening now. Or, at a minimum, to have liquidity in your account if you so choose. I don't see a disadvantage to powering down to get liquidity weekly, unless you're choosing to be a passive investor. You can always just put your investment back into SP if you think that's the best move.
So let me get this straight: you're simply going STEEM -> SMD (internal), then SMD -> STEEM (internal)? How does this earn you money? It seems like you'd simply lose the bid/ask spread each time. Or is your SMD -> STEEM conversion done through the 1-week delay? If so, how do you guarantee yourself any profits without making assumptions about the STEEM price over the next week?
Or, it's possible that I'm not understanding something crucial. Like, maybe I'm picturing the 1-week conversion happening through the internal exchange, but really it simply destroys the SMD and prints you new STEEM in exchange. Even then, it seems like you'd be risking an unfavorable exchange rate at the moment of conversion.
Yes, it's converted over the one week delay, through the built-in feature.
You cannot 100% guarantee profits every time, you can just increase the probability that you make a profit, particularly over the long-term. If you purchased SMD on the internal exchange with your liquid STEEM, and the price on the internal exchange was a fair amount higher than the STEEM/BTC price (I set my threshold @ at least 10% discount) the average price would have to drop at least 10% that week for the trade to become unprofitable.
Sure, it's a young currency, and it's very possible to have STEEM move up or down in price that rapidly, but you get a 10% margin of safety built-in with the SMD purchase if you purchased it at a 10% discount compared to the STEEM open market price.
It's a risk I'm willing to take because I expect it will net me more Steem$ and SP in the long-term. I see it as pretty low-risk way to grow my investment - speaking in terms of cryptocurrency trading, not as a "traditional" investment, of course - combined with holding and growing a reasonable amount of SP.
I'm starting to believe you. This is actually a pretty important service you're providing for the Steem system, because what you're specifically doing is taking SMD out of circulation (buying them) when they're undervalued, and destroying them (converting to STEEM), which will help bring their price up.
I wonder - how close does the median feed price (the conversion price) track the real-time external value of STEEM?
Hey @biophil. Thanks for the conversation yesterday. I wrote a new article about this that attempts to clarify what we talked about yesterday:
https://steemit.com/money/@trending/how-to-purchase-steem-at-a-discount-on-the-internal-markets-by-locking-in-an-18-margin-of-safety-profit-on-undervalued
To answer your question below, regarding the feed, I've occasionally looked at market prices and compared them to the feed. If it's not perfectly accurate, it's very close. Certainly close enough for me to feel there's only minimal risk.
Thanks again!
some questions:
You powered down now you have steem, you buy SMD on the internal market and you convert to steem again using the built in feature. meaning that within a week you will receive steem. and you said that you will get more steem than powered down. Are you working under the assumption that the steem price will decline every week - over time ? if so once a price pump happend you lose steem.
also don't you think that the week you lose to wait for SMD to convert to steem you could have earned the interest on SP instead? seems like the safe method.
It's very important that you buy it at a discount. In other words, the price of STEEM on the open market has to be a fair bit lower than the price that STEEM is being sold for on the internal market to SBD.
No, this is not working on the assumption that STEEM will decline every week over time. It is assuming that you are purchasing SMD on the internal market at a discounted rate to the open market price every time. This trade may not be profitable every single week, but for as long as you can continue to purchase SMD on the internal market at a discount, it is more likely to be profitable than not over time.
The amount of SP you would earn over the week is likely lower than the lump sum increase you can gain by taking advantage of the spread. Obviously, again, this opportunity only lasts for as long as there is a discount on SMD.
Yes, plowing it all into SP is absolutely the safest method to increase your balance. I wasn't disputing that. But to me, powering down to get the weekly payout of liquidity to take advantage of market distortions like this is a no-brainer. (I'm not taking out everything - just allocating that weekly payment however I see fit.)
let's say you powered down and you go to the market and the there are no discounted SMD on the markets. than you power back up instantly ?
You got it. From my understanding, there is little to no penalty for doing so.
Also keep in mind the discount has to be enough to be worth it. Personally, it was an almost 10% discount for me when I purchased SBD, and I've seen it as high as at least 15% since then. That means the median price would have to be at least -10%-15% over the next 7 days for you to lose on the trade.
If the discount was only 1-2% it wouldn't be worth using the conversion feature. I might just hold SBD in that case, or plow my earnings back into SP.
Trading and converting almost always comes with risk. But it wouldn't be worth it without it. As a Reno blackjack dealer (quoting Young Jeezy) once told me, "Scared money don't make money."
Agreed - this is certainly not "absolutely no risk" but this trade does feel fairly low risk to me when you're buying SMD at such a large discount. It seems hard to lose money over the long-term.
Nice post!
Hi! This post has a Flesch-Kincaid grade level of 9.9 and reading ease of 67%. This puts the writing level on par with Michael Crichton and Mitt Romney.