I was having a discussion with a friend who wants to invest in Steem and upon discussing it I realized that the classic investment logic fails with Steem because the investor might fail to realize the subtle difference of Steem to other cryptocurrencies.
So my friend was like "ok, this has spiked a lot so I'll wait a couple of months for it to cool down and hopefully it will work out and get in much cheaper than if I got in now - besides with all the inflation, the price can't keep up - right?".
Yet, despite factoring the inflation, I noticed a fallacy in his thinking: He wanted to buy a fixed amount of coins. Yet if he waited, that fixed amount of coins would be diluted by then and represent a smaller percentage of the pie. It was something he hadn't thought about.
So, for those who want to build a small or large investment position with Steem Power, one would think that the optimal entry strategy is to find a buying opportunity where one can acquire the most coins for the least amount of money - even if that requires waiting for months. That strategy may work for practically every single cryptocurrency, but it doesn't necessarily apply for a highly-inflating asset like Steem (unless there is a good crash in the price, in which case it'll work).
The reason why it doesn't apply, is due to the high inflation of STEEM: For example, if one wants to try and wait for 6 months to buy 10000 STEEM, by that time these 10000 STEEM will represent a much smaller percentage of the total pie and thus the vote power that the investor will acquire for less money will also be smaller: These 10k STEEM bought at a later date could be the equivalent of buying 6k to 7k STEEM, months earlier, due to the inflationary effect.
So a lower price alone won't do the trick of getting in with a cheap entry point. The intended target for the buyer should be a certain percentage of voting power he wants to acquire instead of a number of coins. The later is meaningless as time progresses - or better stated it means different things in different times: 10.000 STEEM today is not the same as 10.000 STEEM in 2 months, 6 months or 12 months. Thus even a lower cost of entry buying a fixed amount of coins is wrongly calculated.
Example:
If investor A buys today 10.000 STEEM at 2$ each, next year he'll have at least 19.000 STEEM.
Now let's say price dropped at 1.3$ for next year same time.
If investor B waits a year to buy 10.000 STEEM, he'll pay 13.000$ for these coins.
In theory investor B got-in cheaper because he paid 7.000$ less.
Yet by the time investor B buys his stake, investor A's 10.000 STEEM have given him 90% interest (19.000) plus curation rewards (that I will not be counting).
So at 19.000 STEEM x 1.3$, investor A's position has gone up to 24.700$. And now investor B (at 10.000 STEEM x 1.3$ = 13.000$) will be lagging in both compound interest and curation rewards because his stake is so much smaller due to STEEMs getting diluted. Investor B indeed got in cheaper, he bought "the same" quantity, but by the time he did so that quantity no longer represented the same level of power and money-making potential.
So, as they say, time is of the essence here. Don't overlook that aspect if you are planning to invest.
basically during the distribution phase VESTS are compounding at around 3% per week, so if you calculate the cost per Mv (million vests) and see a significant dip, then and only then would waiting make sense.
However, if you have to wait for 1 month for a 10% dip, it would have been better to have just paid 10% more and get 4 weeks of 3% gains (compounded)
If your timeframe of waiting is 3 months, then you need a 42% drop in price just to "breakeven" against this increasing ratio of steem_per_mvest
my advice is to just dollar cost average over a couple weeks, it wont get you the best price, nor the worst price. Alternatively to frontload it and become active poster/curator benefits from the increased rate of return from day 1.
Yeah, waiting doesn't work all that well at a highly inflationary scenario.
Btw cost-averaging on the way down is also a nice supplementary strategy. Perhaps if one starts with a budget and leaves a portion unallocated, he can use the unallocated fund to buy serious or extreme dips. The investor following that route should have a spreadsheet automatically calculating the target prices as these will be changing all the time - and obviously he should be adjusting the market orders frequently...
the following might also be a good strategy to complement frontloading: https://steemit.com/steemit/@jl777/how-to-have-your-cake-and-eat-it-to-or-how-you-can-have-your-sp-increase-even-while-you-are-powering-down
The price should drop much faster than that, inflation is high, selling pressure is very high. We will soon revisit the 25 cts area per steem.
some great points here, my family think i'm mad for reinvesting my rewards into the site. but with 258 steem earning approx 0.7 steem a day it's earning me more here than it would in any savings account.
That's not true, you are not earning anything. You have the illusion of earning but you are just fighting inflation. And even the inflation is higher than what you are making with your Steem power. While steem coins are created the price of steem currency should go lower and lower. You will have more coins that are less valuable. That's all. You are not making money.
it is too soon to make any such conclusions. if you look at price change from june to july, there are a lot more coins, and each one is worth a lot more. which makes your statement wrong for that time period. I am not saying that every month will be positive, but nobody is smart enough to be able to know for sure what the userbase growth will be. and without knowning the userbase growthrate, user retention rate, it wont be possible to come up with any decent projection on future price, inflation adjusted or not.
Do you know how many users steemit will have in Sept? Next year? If not, how can you make any credible prediction about future prices?
Brilliant post, you conceptualized what I've been thinking about for a while. Thanks 😃
Wow. You really put it in perspective. I appreciate this article and all the information regarding the investment and benefit/cost. I want to invest in steem. A month ago, I had 3 steem power. Now I have 21 steem power. Literally grow each day.
How much do you think I should invest to gain 1 steem power a day.?
In theory you can make over 1 steem power per day without investing a cent by putting some time writing or commenting. Here's is 3% of your daily quota (0.03 - my upvote to your comment).
Thank you very much.
I know that if I post and write I can make 1 steem a day, but how much steempower would it take to gain 1 steem a day without curation or author rewards? By doing nothing is what I am asking.
In theory it should be around 400 SP investment to get +360SP (~90%) as annual interest (which is ~1SP per day)
I appreciate your answer, THANK YOU SO MUCH. I will be following your blog for a very long time @alexgr
You have literally made my night. :D
Nice explanation. I am following you.
But it is growing more like 200-300% in the first year to distribute coins. See this post. The benefits to Steem are much higher this year than in he future
https://steemit.com/steemit/@jl777/how-to-have-your-cake-and-eat-it-to-or-how-you-can-have-your-sp-increase-even-while-you-are-powering-down#@dennygalindo/re-jl777-how-to-have-your-cake-and-eat-it-to-or-how-you-can-have-your-sp-increase-even-while-you-are-powering-down-20160805t124308944z
That's why I'm saying "in theory". Because the initial percentage is somewhat variable and larger.
Maybe I missed something, but when you're lookong to buy in, why would you say "I want 10.000 STEEM" instead of "I want $10.000 worth of STEEM?" Then it's less obviously bad to buy in later because you'll be starting with the same value in your position.
If you like what I write, check out my series on the game theory of Steem!
The first approach (in the context given) is attempting to minimize the amount spent for a given amount of STEEM tokens. The second approach simply wants to spend 10k USD - getting whatever quantity with those money. It's not an approach that maximizes bang-for-buck. Now if you start thinking about quantity that you can buy with a certain amount of money, then you go back setting a target of quantity (indirectly) after figuring out the right price to buy in.
Thanks for the post! I have 5000STEEM on exchange. If I power them up then how much SP I'll get. And which curation rewards I can get with those SP?
Remember that if you power up, it's a long-term investment (you can turn it to STEEM at a rate of ~1% per week). 5000 STEEM = 5000 STEEM POWER.
Curation rewards will depend but I think you can expect at least 10SP per week. My ~1500SP give me from 3 to 10SP per week in curation rewards - but it is dependent on what I curate, obviously
Thanks for the reply!
If I'll decide to power down in two months or year, then I'll get only 5000STEEM back immediately, right?
No, you get 1/104th of 5000 per week.
Say you have 1000 SP right now and you power down. You'll get ~9.6SP per week for 104 weeks (that's 2 years).
Oh! But if I'll decide to power down in 2years after I powered up then I can get all powered down STEEMs immediately?
Powerdown will always give you 1/104th, no matter when you click the button.
hm.. then I don't see a benefits to powering up, because I can get meaningful profits in ~4years(!). For example, in two years I'll start powering down all the PSs I'll have at that moment (~20000) and in 2years I'll get them all powered down in STEEM.
Check the latest article of jl777: https://steemit.com/steemit/@jl777/how-to-have-your-cake-and-eat-it-to-or-how-you-can-have-your-sp-increase-even-while-you-are-powering-down
I upvoted You
Your friend should buy when the Steem market cap is low irrespective of the USD/SP rate (if looking to buy at the low). Right now the cap is falling beyond the dilution from Steem inflation.
The cap is indeed a better target.
Thank you for this one. I have been waiting for some detailed explanation as yours
Yes, that's a good perspective. Solution: Steem Power.
Hello. Thanks for a great article. I'm still new around here and still a bit confused by those 3 currencies used here, but articles like yours helps a lgreat deal.
Anyway, I need to ask - how does "curating" works? Is it just replying to the post with comments? Or is this purely just upvoting/downvoting articles?
Curating is mainly about spotting good articles and upvoting them. Preferably before others do (that maximizes the profits). A percentage of the article reward (25% IIRC) go to the curators in order of vote priority and vote weight. If your vote doesn't have much weight then obviously curation rewards would be very low. My ~1500 SP give me ~3-10SP per week from curation, but I'm not very active in that regard and I use a lot of upvotes as "likes" in comments (which isn't really maximizing my curation potential). It could probably be twice that.
Thanks, its only my low amount of SP then :) I started to think I'm doing something wrong when not receiving anything at all. I guess I need to get above 3 SP I currently have any impact.
If whales are powering down and selling why on earth would you want to buy ? Smart people are selling, you should not be buying. Also the price raised 20 fold in a parabolic move, there is a big chance that the price goes back to where it was as a consolidation before anything else happens. We can expect the price to move back to 25 cts this year. So actually, there is no good reason to buy now, unless you believe the price is going to remain high, but that won't happen with all the whales selling and the inflation that we have at this moment.
This is not a traditional altcoin because you have like 97-98% of steem locked up. There is no liquidity and thus the price and marketcap are determined by the 2-3% of floating STEEM. It's not like you can dump tons of it.
You don't need tons of it, the volume is only 250K USD per day, that's really nothing.
You need a lot of buyers to buy the coins of the whales that are powering down.
Also, once the users will realize that their steem power has no use apart from curation rewards that are very low, they won't buy any more steem power at all. Because you are not earning tons of money with steem power like everyone thinks, you are just fighting the inflation, and not all of it by the way.
The more coins are created the more steem prices should go down. A bubble started when the site started to take off creating an illusion that the prices would go higher with new users when in fact the prices should go lower. Because more users = more inflation, more coins created for the new users.
The only thing that could take the price of steem to new highs is buying pressure. Why would anyone buy steem ? The only use is to power up. You can fight inflation by staying out of the market, so the only real reason is curation rewards.
So in theory 1 steem will never be worth more than it is today? Never go back up to $3, $4 per?
It depends on market demand. The market conditions allow for quick price rises if there is sufficient demand due to very limited liquidity (97% of STEEM are locked and off the market).
What Steem is inflationary? But I put all of my money into it :'(
Thanks for starting this thread. Really appreciate you bring this to our attention. Investing in cryptos is still a risky thing. We do need more indept investment analysis. An interesting website I found: https://www.coincheckup.com This site is really helpful in my coin research. I don't know any other sites with so much indepth analysis. Check for example: https://www.coincheckup.com/coins/Steem#analysis For the Steem Investment research report.
Dear User known as @alexgr
Steemit has a BOT problem! Your Vote Counts... Maybe
https://steemit.com/steemit/@weenis/bots-steemit-s-first-community-based-decision-on-bots-your-vote-counts-to-be-or-not-to-be-details-inside