This analysis is on Steem-Backed Dollars (“SBD”) only. I am very bullish on Steem as an investment and feel the recent price estimates in the mid-20s are possible this year.
I wanted to take a few moments to discuss my perspective on SBD as an investment in light of recent price predictions based on technical analysis showing a possible price of SBD over $80 about a year from now.
It is extremely unlikely that it will happen, and I personally put the odds at less than 5%.
Before I give you my reasoning, you first need to understand how payouts work as well as the Steem algorithm.
The Steem blockchain algorithm produces an inflationary amount of new Steem each day. Instead of data-mining like bitcoin, here we “keyboard mine” the Steem with our content, and the daily Steem is paid out as follows: 75% to the reward pool for authors/curators, 15% to current SteemPower holders (essentially interest), and 10% to the witnesses. Right now, the inflation rate of new Steem being added is about 8.6% per year, but here is a better visual on the future inflation rate as per the Steem blockchain’s algorithm:
The reward pool for authors and curators is paid in SteemPower (“SP”). However, an author can select to be paid in 50% SP and 50% SBD (curation only paid in SP). SBD is paid out on Day 7 as if it was trading at $1.00, despite its current value on the internal or external marketplaces. That means that if SBD is trading for $3, you are benefiting by $2 from the price arbitrage. If SBD is trading at $0.50, you are getting hurt by the price arbitrage. Here is an example of a post payout with SBD at $3.00 and $0.50:
You can see the huge price difference, as SBD trading above $1 where it is supposed to be pegged is a huge windfall for the authors. If SBD is trading below $1, you would be better off (at least initially) electing to receive you post in 100% SP instead of 50/50. As I understand it (and someone correct me if I am off), Steemit Inc. is responsible for buying back the SBD they give out, as the payout is supposed to be in Steem, so there is an obligation convert it back to Steem at some point in the future.
With that background information, I can now get to my point – SBD will not be hitting the $80s. If you recall, a couple of months ago, SBD took off and hit $18 (extremely briefly), and did trade in the $6-$8 range for a couple of weeks. SBD price has continued to erode for the most part ever since, and it is now at $3.65, which is still a huge windfall for the authors.
Cryptocurrencies are largely supply and demand based. As more supply comes in, demand must keep pace, otherwise you will have price erosion from the dilution. With Steem, there are only around 400,000 active users – the potential for growth is enormous, which will make Steem even harder to get, pushing the price higher.
This is great news, but as the price of Steem goes higher, the payouts will also get higher. With higher payouts, comes more SBD printed each day (SBD produced is not fixed). Since tokens are supply and demand, and with little incentive to hold SBD except for investment purposes (Steem has incentives such as a higher vote value, interest paid to SP holders, a fairly stable price, etc), there will be many more sellers of SBD than buyers, causing pressure on the price, and therefore, making it nearly impossible for it to reach $80.
So that begs the question, who is buying up all the SBD? There is no question that some group has been parked at the bid chewing away at whatever anyone wants to sell them. Is it Steemit Inc trying to buy what they can to take care of their obligation (essentially a squeeze as not everyone sells their SBD)? Or it is Steemit Inc out there pushing SBD higher in order to reward content creators to a greater degree? Perhaps a group knows the float is low and it is not really supposed to be a trading coin, so they are buying it up in order to run it up again?
Who knows why the current price is above $1. My current strategy is to hold a slight amount of SBD (currently around 100 units) in case the current buyer decides to run it up (I imagine it would be a very short pop), but for the most part, I am selling all the SBD I receive from my posts and buying Steem with it, and then powering it up. What an awesome benefit SBD being above $1 is, but let’s not get carried away – SBD is not going to $80!
That also reminds me to mention that you need to be using the “MARKET” to buy/sell your SBD for Steem (or through Blocktrades) and not to use the “SELL” feature, as it takes 3 days to convert the SBD to Steem using “SELL”, and it does so at $1 instead of the current value on the marketplace. I hope that makes sense!
This is public blockchain, so if someone has done the digging into who the buyer is that is grabbing everyone’s SBD, that would be helpful to know!
Congrats to those who had the patience to read this whole post, and I hope it was at least a little helpful!
Brian