Welcome back to the second edition of the Orconomist, the Steemzine that gives you the low down on the economical aspects of Steemit.
This edition is inspired by the excellent 
First of all, this is a pretty spot on prediction, every economic system on earth obeys the First Law of supply and demand. It is quite simple if there is a short supply and a high demand, the price of the commodity will rise.
If however there is a large (or endless) supply and a low demand, the price will fall. I know of no economic system that has broken the First Law; if anyone is aware of one, please let me know in the comments below, I will be most interested to find out about such an oddity.
Pareto And The Top 1%
The genius Italian economist Vilfredo Pareto (1848-1923) postulated a theory that is found to be prevalent in not just man-made economic systems; but in nature too. Pareto's discovery led to the creation of the field of microeconomics.
He discovered that in any given system, 80% of the output would be created by 20% of the input; this has led some to call the Pareto Principle, the 80/20 rule. We can see this writ large over the entire globe and in every human system imaginable.
The numbers are not always exact; however what is consistent is that; "the few" will be responsible for most of the productivity.
On Steemit, there are probably about 20% of the signups who will be responsible for 80% of the content on here. Around 20% of the world earn 80% of the money, and so on.
The thing about the Pareto Principle is that you can keep going until the sum can't be done any more; so for instance; the top twenty percent own eighty percent of the wealth in the world. Drill into that top twenty and you will see that the top twenty of them will own eighty percent. Keep going and the 80/20 rule will work all the way up until you hit the 10 richest people/families in the world.
Guess what? Two of the top ten are accountable for about 80% of that block of wealth; and so it goes on..
Steemit however, is not a completely closed organic system; the top holders of SP acquired it before Steemit launched, therefore the ratio is closer to 1/80.
Mechanics Of The Dumpening
When Steemit launched it was felt that a good way to promote long term investment in the site; was to pay out half of the reward in Steem Power which remained locked into the system for a minimum of two years. That is to say, if you wanted to withdraw your accrued Steem Power in Steem and Steem Dollars, you needed 104 equal payments.
However Steemit is in beta (test) mode; therefore things can and will change, and one thing that has changed is the length of time required to take out accrued Steem Power. It has dropped from 104 payments to 12; roughly an 8:1 reduction.
What we have seen since the giddy heights of Steem touching $5, is a mass power down from the top 1% of Steem Power holders. Which is fine; because that's how the system was designed, however what we saw fairly rapidly, was the market's demand couldn't keep up with the extra supply from the top 1% powering down 6 and 7 figure sums each week.
So Steem did what any other financial asset does when there is more of it around than people want; it fell in price.
Halting The Slide
The journey that the Steem price has been on these past few months is not a steady even decline; what we have seen is that when the top 1% stop powering down the price of Steem stabilises. The reason for this is obvious, less Steem with a consistent demand, will mean higher prices.
At the moment; most of the top 1% (Whales) have not been powering down, and we have seen prices touch $0.31 in the last 4 weeks or so.
However this won't last; they will power down, and when that happens there will be roughly 8 times more Steem available every day, than there is at the moment, and the price will fall accordingly.
As Chitty pointed out in his, quoted above, article, this will open the door for long term investors to come and snaffle up some cheap Steem. This could indeed, turn out to be a very sound long term investment plan; because after the 12 weeks, things will go back to normal and power downs will represent a fraction of Steem Power earned. At that point, the price should stabilise and then (hopefully) start to rise again.
HOWEVER! This does not have to be the case; if a Whale cabal was formed (and I know a lot of the Whales already speak to each other), they could take turns in powering down, and agree on times when to liquidate and when not to.
So for example, instead of the Whales divesting all of their share in the minimum 12 weeks, take it to 36 or even 52 weeks.
The reasons for this are obvious; the price of Steem will remain higher than if it is all dumped in 12 short weeks. This will mean that the Whales will make more money to fund their ivory backstcratchers or whatever it is they want to purchase.
Economic Manipulation
Would a Whale cabal be economic manipulation? Yes; but it would be for the good of us all; especially the Whales themselves.
This kind of market manipulation is practised all the time in the world of fiat currency; the difference here is that it is easier to control as it is only one variable.
So that's the Orconomist answer to the impending problem; a powering down Whale-rota, will it happen? Is it already happening? Who knows; one thing I do know, is it needs to happen if we are interested in surviving the dumpening and protecting the price of Steem.
Till Next Time
Happy Steeming
Cryptogee