Should As Much STEEM As Possible Be Powered Up?

The message you receive often on Steem is that you should power up, use your influence and be an active member of the community. It is in fact a particularly good idea to power up and engage actively right now that there is relatively little competition over what you can earn from the inflation pool. Steem inflation is always ticking over according to its slowly decreasing pace regardless of how many users are putting out posts and getting rewards. If you buy STEEM, it's a good idea to power it up because it will help you earn more. There are fewer people around than during the peak of the last bull market and your chances of being recognized by the heavy hitters are better than they most likely will ever be.

All that said, should you always remain powered up? I think not. That's because STEEM is crazy volatile even for an altcoin. There are two basic reasons for that. First of all, the Steem Backed Dollar (SBD) is a STEEM backed stablecoin. The price to pay for the relative stability of SBD is the instability of STEEM. When SBD is worth less than one USD, SBDs can be converted into a number of STEEM worth exactly one USD. The conversion process takes 3.5 days and during the process the SBD converted is burned new STEEM is created. The conversion process guarantees the creation of sufficient STEEM to be worth one USD only so long as the market cap of SBD (the value of all SBD combined) stays under 10% of the market cap of all STEEM. The burning of SBD helps maintain its price while putting considerable downward pressure on the price of STEEM particularly when there is a significantly large number of SBD in circulation that was created during a previous altcoin bull run. Secondly, powered up STEEM is non-transferable and as good as non-existent for the purposes of trading. If there is much demand for STEEM, that will result in severe scarcity as those with their STEEM all powered up will be completely unable to sell.

For the above reasons, once the price of STEEM starts going up, it's a smart move to keep an increasing share of ones stake liquid. That's because price of STEEM has a tendency to spike to an extreme degree. But whatever goes up parabolically must come down. There's always a correction. That's why it's a good move to sell. If SBD has remained stable and not spiked, then it can become a convenient store of value as using it doesn't even require the money to leave the platform. Buying it if it has gone far north of one USD is dangerous and cannot be recommended for anyone. When the price of STEEM bottoms again, it's a good time to buy STEEM on the way down with the large supply of SBD you have left from the bull run.

The instability of STEEM is harmful to the ecosystem because an extremely high external value of STEEM results in an excess of SBD to be created as the liquid portion of content rewards. This will in turn result in STEEM getting hammered in the following bear market. That will result in any and all businesses dependent on constantly selling STEEM, including Steemit, Inc, to have difficulty covering their expenses during a subsequent bear market unless they are very careful about running their finances. The volatility of STEEM is a real problem. Fortunately, we can all be part of the solution. The more of us manage to keep our heads cool and unload during the spikes and the more of us power up and keep our noses to the grindstone during the bear markets the more stable the price action.

Another good idea I've heard some people talk about here is shortening the power down period from 13 weeks to four weeks, possibly at an extra cost depending on how fast one wants to power down. That would make a lot of sense because the alternative is keeping all funds liquid but that's results in a loss of the size of the annual inflation rate right out of the gate. I agree with the idea that it would be easier to attract investors if powering down could be done faster.