The amount of BTS locked in is a/the most fundamental metric of interest to Bitshares. The more locked in, the less liquid supply. The less supply, the higher the price. At least in principle.
Then why isn't more collateral locked in? Why aren't the shareholders collectively doing more of what would most positively affect the value of their investments? Luckily, the situation is improving, but success is still far from secured. What is the least risky strategy? How can shareholders take action with the least risk, and personally benefit from their own activity?
Too Long, Didn't Read
- Short Fiat's like RUBLE and ARS
- Pay for services with MPA's
- Hedge within Bitshares
- Provide liquidity with no risk
- Bitshares is awesome. Be patient - the markets will eventually catch up.
Exporing the problems
In order for the lock-in of collateral to be meaningful, the borrowed MPA must be sold in a way that locks the collateral away from the holder. That is, for another MPA or UIA. The most effective act is to sell the MPA for BTS, which then magnifies the exposure to the price of BTS. Here comes the first problem.
The shorter takes the risk, while everyone enjoys the benefit
The incentive to short MPA's is the belief that BTS will go up in comparison. Such believers have however been way ahead of their time, and shorting MPA's has increased the losses of the most loyal and active shareholders. Meanwhile, passive shareholders have enjoyed smaller losses. This is paradoxical and detrimental. Every time an active shareholder is forced to close his position, the influence of a positive force in Bitshares is reduced. At the same time, everyone else is dis-incentivized to short MPA's.
MPA's lock in collateral from strong hands, not weak
Whoever shorts a MPA, is long on BTS. He isn't the one selling. So once the MPA is shorted, the strong holder remains one, and the weak holder continues to sell. The strong holder is at the mercy of the weak person - so to say - and nothing is gained. The problem is how to get BTS away from weak hands.
At single digit percentages, locked in collateral has little or no effect on price
Continuing the previous point; strong hands locking their holdings away doesn't actually reduce liquid BTS supply. This is the case until more collateral is required from the liquid markets. If 2% of BTS is locked in collateral, there is still 98% left. The 2% has no effect at all on the price. Increasing the collateral from 2% to 3% is significant if observed in isolation, but the reduction of liquid supply from 98% to 97% is nothing. Thus, the incentive to lock in collateral is relative to the collateral/liquid ratio. Obviously 100% is like the horizon, always receding, but the equilibrium must be somewhere much higher than 1/50 ratio. Maybe close to 1/2. Until that, single actions very limited positive benefit.
The most interesting MPA's are the least interesting to create
The better the risk/reward ratio, the more interested someone would be to buy some. For shorters, it is exactly the opposite. There's little risk in shorting Argentina Peso's (ARS), but how to create demand? On the other end of the spectrum, there's Bit20. With a little marketing one could imagine some massive demand for an asset very likely to give 200% annual return or more, but there's little incentive to short any. So where there could be most demand, there's no supply, and where there would be most supply, there's no demand. That's a problem.
The price of BTS is decided where Bitshares is disliked
Real shareholders don't hold their BTS on external exchanges (hopefully). Only speculators. Since the largest exchange volume is on these other exchanges, the price is determined by people other than shareholders. This is obviously normal, but that doesn't mean it's good. If shareholders want to affect the price, they have to deposit money to these exchanges and place orders there. I don't like it. In addition there are ignorant people giving BTS as P2P loans which increases volatility. If these people wanted to increase the value of their holdings, they would take the money back and put it to work for Bitshares.
Solutions
My goal is to find solutions that would benefit the active shareholders, and Bitshares as a whole. I certainly haven't reached any definitive conclusion, but here are some thoughts.
Realizing that the best investment opportunities are found at low's
Being right ahead of time is indistinguishable from being wrong - until truth is revealed.
Psychology plays a huge part in investing, and as a result the pendulum swings to either extreme. There is always a seed of truth behind market reactions, and therefore there really is something wrong with what is regarded as low value. Now here comes the important part. Markets overreact. They aren't efficient. Bargains can be found by looking at assets with some problems, and finding the ones that are totally undervalued. Maybe the problems are just a matter of fixing, like for instance marketing. One by one, investors will see what you see. Once the truth is revealed to the markets, they will overreact again - to the other extreme. It's just a matter of time. So one should just patiently hold, and short MPA's according to one's own risk tolerance
Recognizing the intrinsic value of Bitshares
There is relatively little risk in buying an undervalued asset with intrinsic value
It's really frustrating to understand how far ahead Bitshares is of the game, and then watch people pumping massively inferior products, or even worse, empty promises. It's a game that can't last forever. There must come a time when more people realize which projects have real value. We can never know when that day will come, so it is better to be prepared, and keep hold of the ones with real intrinsic value. Bitshares is surely one of them. Just take the long view.
Taking conservative positions
Don't go out on a limb for just a little more profit
It is beneficial to Bitshares that people short, but not in excess. Running out of collateral will hurt you - and ultimately Bitshares. I would say that a suitable amount to short is a little more than everyone else on average. A little less than average would result in negative development, but a little more means a push in the right direction. If everyone kept shorting a little more then average, we would see constant growth. In fact, that might be what we are seeing at the time of writing this. Shorting conservatively like this will leave you enough excess collateral to survive eventual slumps. If you can't tolerate even short term fluctuations, jump a few headings forward.
Satisfying market demand
Any demand for MPA's should be satisfied. It means people are trying to bring more money into Bitshares, but don't want exposure to BTS volatility. If their need isn't satisfied, it's a lost opportunity. In fact, shorting bitAssets is the single most important thing a shareholder can and should do. Supply and demand are some kind of a chicken-egg problem, and we make use of the other part being offered. If we want people to trade on Bitshares, they must get what they want.
Starting from the most inflationary MPA
The worst Fiat currencies are the best ones to short. So if there is any demand for them, make sure to use the opportunity. Even if they are poor assets as such, they lock in BTS. They are low hanging fruits, and it might be worth selling for less than feed price. Once the demand for such MPA's is satisfied, it is worth looking at more neutral ones, such as USD, EUR, CNY. Also the demand for those should be satisfied.
In cryptocurrency terms, Gold and Silver are relatively stable, and they are also interesting investments. They might prove as a sweet spot for BTS holders, once the demand for Fiat's is satisfied. Then there is Bit20. As much as I like it, I think one shouldn't short it yet. It's a much better bet to short Fiat's, gold and silver - as much as there is demand. Once the demand for other assets is satisfied, and the collateral/liquid ratio approaches some kind of an equilibrium, it will be good to find more growth by shorting Bit20. For the brave, though, the nice premium at the moment might make it more interesting.
Favor the DEX
If you want to buy or get rid of some other cryptocurrency, try to trade it on the DEX. It will add value to Bitshares benefitting yourself as a shareholder. If there is no market for it, and you are in no special hurry, bootstrap one yourself.
Hedge within Bitshares
If you think a growth period is reaching it's end, or you just want to diversify, consider doing it on Bitshares. After all, you don't need to leave Bitshares to get USD, EUR, or BTC. Make use of the awesomeness! It's unlimited and frictionless. This is actually a unique and incredible feature of Bitshares.
Try to use MPA's as a payment
And introduce Bitshares to someone new. They will likely not withdraw soon, but forget about it or start exploring. It's also a nice way to pay for services without getting any poorer. You can just create the money when you need it.
Slowly remove liquid supply from external exchanges
Until there's arbitrage bots working between the DEX and other exchanges, it is better to buy BTS from somewhere else than the DEX. That will reduce BTS from weak hands, while buying from the DEX won't.
Providing liquidity in MPA markets. If you are just hodling and hoping for moon-rocket, this is for you
You can do this practically without risk. Borrow some USD, EUR, CNY, GBP, AUD, CAD, GOLD, SILVER. Check the rates from xe.com. Then set up some buy and sell orders on each side of each market pair. You will have a net zero position, because you will hold an equal amount of MPA's that your collateral is backing. Still, you will benefit from the eventual rise of BTS AND earn the spread in your markets AND add value to the Bitshares ecosystem giving a push to it's price, benefitting yourself once again. This is something every Bitshares shareholder should consider doing!
P2P lending would give interest to MPA holders
This is only a dream. At the moment there's little incentive to hold bitFIAT's. If there was, more would probably be created. P2P lending together with leveraged markets could be the solution for this, as you could choose to get either interest by lending or leverage by shorting MPA's. Such a feature - if possible - would greatly benefit Bitshares.
Conclusion
There are perceived and real risks, which inhibit shareholders from participating in value generation. A few strategies are relatively riskless, but there is little awareness of them. If people made more use of the multitude of possibilities within Bitshares, it would benefit everyone onboard.
Bitshares also lacks a way of reaching shareholders effectively, in order to raise awareness of existing possibilities. Systems such as "tip of the day" could be integrated into the UI, and the messaging functionality could be improved. They could provide a means for the committee or anyone to reach all shareholders.