In this commentary I explain
- How “power-down” happens in the stock market.
- Why is it important to have liquid assets which you can sell every time.
- Why I feel that long “power-down” periods in Steem world are limiting my financial freedom.
Crypto-Quickies
Transaction times of cryptocurrencies, crypto-exchange selling can be as low as some minutes or seconds. But you have to wait for the “fiat money” often 1-3 days, especially if it is an international bank transfer.
(For newbies: On Steemit.com and other Steem applications, if you want to vote posts, you have to “power-up”, deposit and freeze your Steem. You can retire it again only in a process of 13 weeks called “power-down.” In a new proposal, you can vote to reduce the power-down period to 4 weeks. /See here./)
How to Exit Stocks?
On international stock exchanges, the “exit time” is mostly two days. If you make a transaction (T), selling stocks, you get the money in two days (T+2) on your brokerage account. But after selling, you can buy new stocks immediately. These transactions are cleared almost in real-time. (In the European Union, for example.) The same rules apply for many commodities products, ETFs, open-ended funds and foreign currencies.
It is different in some cases, for example by real-estate funds or trusts. Because selling a real estate object takes time, mostly, months or even years. So, some real estate funds apply 3-12 months of time limit for withdrawing money. (T+90, T+365.) The famous hedge funds and some closed investment companies, trusts can apply similar limits. But this sort of investment is more for institutional investors.
Voting in Companies’ World
How goes voting? Shareholders of all companies have the right to vote on general meetings. The shares must be deposited and locked by your brokerage firm or bank for approximately one week to do that. As far as I’m concerned, the stocks can’t be sold in this period, are blocked. They give you a receipt to certify you have the right to vote at the meeting. One example of the rules of an aleatory company (Telefonica):
The right to attend a General Shareholders' Meeting shall accrue to the holders of at least 300 shares, provided that such shares are registered in their name in the corresponding book-entry registry five days in advance of the date on which the General Shareholders' Meeting is to be held…
Remember the Lehman-Crash
So, something like “power up” and “power down” happens there before and after general meetings of companies, too. And causes you a lack of liquidity, but only for approximately one week. Liquidity is a valuable feature. You can quickly react to sudden price moves if your stocks are in a liquid state. How important is this? Imagine you are on the first day of a Lehman Brothers-style, huge crash and you can’t sell… (The bottom was much lower in 2008-2009 than on the first day.)
“Being liquid”, being able to sell my assets anytime means for me some sort of financial freedom and security. The power to act if I wish to. I see no real reason to delay the selling of an asset that transfers often in 3 seconds, like Steem, for 13 long weeks. (Not even for four weeks, by the way.) It seems to me like a prohibition to sell my stocks or to access my bank account. I’m not very comfortable with that.
Reasons for selling
If I want to sell Steem, that is because:
- I badly need money.
- I’m very outraged with the Steem system and I want to shut the door behind me as soon as possible.
- Or, I see some great opportunity in other crypto, stocks. I may want to “diversify my portfolio”, split my investments into several parts. (And that diversification is advisable for all.)
If somebody is forbidding me to take my money and leave, that feels like some sort of jail, trap, police barrier. Especially if you see the price declining continuously in those 13 weeks. I have bad feelings with such limitations. I prefer freedom.
Fears of Crash
Many Steemians are afraid that a shorter power-down period can push down, crash the price of Steem. It creates selling pressure. A temporal crash is possible. But the selling pressure comes not from the liquidity, the power down itself. The selling pressure comes from the lack of trust, the wish to cash out and run away, not from the power-down time. You should treat the disease, not the symptoms. End fears, mistrust, worries, anxiety, dissatisfaction. Not prohibit people to react to it.
I have various stocks I could sell any time and I would have the cash on my account in two days. But I don’t sell them for 3-5 years already because I believe in the future of the companies or commodities.
Free market in a free world
Indeed, after a change in the power down period, the price can crash. But it will be a good buying opportunity if you still trust in Steem. Better let them sell, all who haven’t faith anymore and let others buy cheap. And sometime later, a new bull market can begin.
Communists or dictators used to forbid selling if they don’t like falling prices (for example in China). Some politicians are trying to prevent stock price falls making short selling illegal and sellers guilty. But these artificial, administrative measures are mostly ineffective in the long term. Who wants to sell, will sell, only some later. You shouldn’t forbid the free market in a free world.