As I’m sure everyone has noticed by now Steem is moving lower by the day. Since I’ve started on Steemit in January it has already lost more than half of its value. What is concerning to me more than the sudden drop in value is how fast people want to buy the dips.
Generally, in a bull market you buy the dips or in an otherwise healthy market. You don’t want to do this with something that is not stable and never was. When a trend is bearish or you are in a bear market buying the dips is also called trying to catch a falling knife because the price cuts right through you and continues lower.
I have heard that some of the whales are powering down and cashing out, I don’t know whether this is true or not. I would venture to guess that there may be some truth in it. But, the real issue that people need to understand and I’ve said this before, Steemit needs outside support to function. The Steemit ecosystem cannot sustain itself when its product is external.
To break this down, Steemit creates convertible currency that you can change into fiat currency. In order to allow this conversion Steemit must present value externally to do the conversion. There has to be an external acknowledgement that Steem is worth X amount of fiat currency that is agreed upon both inside the blockchain and out. That being said, if there are no investors willing to put more fiat into Steemit then the Steem currency cannot sustain any kind of value.
Depending on how much external interest Steemit gets (and Steem) is how high in terms of dollar amount they can go. In reverse, if investors leave or become not interested the currency will go lower. How low can it go? It can go to zero. The US dollar used to be backed by gold and was taken off of the gold standard to float in an effort to quicken the pace of the economy and the velocity of money. When it was on the gold standard it may be able to lose value but not total value because it had a backing by gold. Now that it is backed by faith it is a different story. Faith can certainly go a long way but you can also lose complete faith in something. When you lose complete faith in something what value does it then have?
Crypto currencies (most of them) are backed by a Peer to Peer faith. The blockchain technology guarantees a trust in terms of the transaction but the peer to peer faith is what allows the block chain to maintain its value. This is both good and bad but it’s still a very new concept.
I’ll be the first to admit that I can’t predict the future. I’ve actually checked out a few so-called psychics on YouTube who are saying to buy Ethereum and seem pretty sure about it. Then again most of them thought Hillary Clinton was going to be president. It’s really tough to make future predictions but we can still learn from our past. If something is too good to be true it probably is. There is without question a value in having a decentralized media platform like Steemit as an alternative to the Twitters and Youtubes out there. However, when we let our greed get the best of us we usually end up falling into a trap. Be cautious people!
Image source: Asvrr.org