On first glance, SBD's have very little use other than to transfer value on Steemit. They are supposed to be pegged with the USD, but have gotten way out of whack over the last few months. For its entire history SBD's traded almost perfectly in line with the USD, but in November SBD's exploded in price! SBD's went from $1 to over $16!! This 1600% return seems high for a coin with no real underlying value. Not only has it performed better than many cryptocurrencies, but it has also performed better than Steem! So what could possibly explain this move higher?!
SBD's are the ultimate bet on the success of Steemit.
Users with large followings on steemit, and have a pretty consistent flow of income via steemit may be enticed to buy SBD's. By buying SBD's, and thus raising the price of SBD's, you can create a greater return on blog posts without increasing the $'s earned per post. If SBD's are at $1 then a post with author rewards worth $100 on Steemit will return $100 USD ($50 worth of Steem + 50 SBD's x $1 =$100 USD. If SBD's increase to $5, then a post with author rewards worth $100 on Steemit will earn $300 USD ($50 worth of steem + 50 SBD's x $5 = $300 USD.
This increase in income per post would incentivize larger members of the Steemit community to increase the value of SBD's. This is a long term play by the whales of steemit however, because you only make a gradual return on investment. It takes a lot of $'s to move the price of SBD's higher, so by buying a ton of SBD's the whales have to be confident in Steemit. In order to return money on investment, they will have to continue to be successful and make a consistent flow of income via steemit, or SBD's will have to keep going up in price. Lets analyze each path to profitability! :)
The first is that they make a slow return on investment via higher value steemit rewards. Lets assume that to move the price of SBD's from $1 to $5 someone would have to buy $1,000,000 USD's worth of SBD. I calculated that by looking at the average daily volume during the run up and assumed a move higher would have to be caused by a buy of 20% of the daily volume. The average daily volume was roughly $5,000,000 USD's thus $1,000,000 is 20%. This huge buy order is sure to cause a spike of significant magnitude as we saw in Nov and Dec. Now lets assume that whoever purchased such a huge amount of SBD's is a whale on steemit. We will just assume that they make an average of $300 author rewards per post and post once per day. If SBD's were at $1, then each post would earn $300 USD's. If SBD's were at $5 each post would earn $900 USD's. This is a $600 larger profit per day. If SBD's averaged a price of $5 over the course of a year, the whale is now expecting to earn a $219,000 larger profit than before! This is a 21.9% return on investment (ROI)!
The second way to profitabilty is if the price continues to rise. Here is where things get complicated... There are strong arguments for price increase as well as price decrease.
Bull argument- More large whales could catch on to the idea and try to support SBD prices going forward. Since whales naturally have far more buying power than the rest of steemit users, the demand from whales buying SBD's would be greater than the supply of minnows selling SBD's . This greater demand would surely send SBD's price higher! Another bull case is that since we are currently in what I like to call cryptomania, people will buy any coin which looks like it might go higher. This fear of missing out might causes the masses to buy in if the price starts to increase. So if the whales can get the ball rolling, the masses might drive the price higher.
Bear argument- SBD's have no real value.. They are not integral to the success of steemit, and have no fundamental purpose besides a transfer of wealth from Steemit to its users. Steem is used to power steemit, where as people use SBD's to cash in their rewards. Also as more people look to profit in USD from steemit, they will have to sell their SBD's this would create a lot of supply. Also if the price goes up, then the only way for a whale to cash out their profits is by selling SBD's.
Both bull and bear arguments are valid, and only time will tell what SBD's price action will be. Since the price of SBD's seem incredibly uncertain, it is a risky bet by the whales that it will hold high for long enough to make their money back. It seems the bets have been made when the price rose 1,600%, and I am excited to see how things will play out. In the mean time we can all enjoy the higher profitability on steemit! :)
Thanks for reading!
