YouTube troll "gino11ish" recently commented that STEEM is in bubble territory. According to his assessment, the "fair price," or fair market value (FMV) for STEEM is only 57 cents. Against the time of writing price tag, that would be a considerable 38% drop. However, I asked this troll how this bearish FMV was calculated. I'm not expecting an answer given the nature of YouTube, but it's not hard to take an educated guess.
Based on the entire weekly price data on STEEM, its lifetime average comes out to 53.4 cents. That's only a 6% discrepancy from the troll's assessment; therefore, the troll likely conflated FMV with lifetime price average. To many people, that may sound like a reasonable assumption. I will, however, demonstrate why this is a mathematical fallacy.
Averages are Deceptive
We must first understand that just because an arithmetic process is technically correct, that its subjective implication is not necessarily accurate. For example, if you hear the phrase "10 dollar gas," that would sound awfully expensive. But if you later discovered that the denominator is 10 gallons, that would work out to a dollar a gallon -- quite a bargain these days!
This is a similar situation to our STEEM fair market value. Yes, our average price is 54 cents. However, that does not mean that most of the trading occurred at that level. Instead, the average is 54 cents because we saw a lot of trading below 50 cents, and few bursts of speculation that drove STEEM to above $1. Balancing these two extremes, we arrive at 54 cents.
But very few trades occurred between 50 to 60 cents -- in fact, only 3 weeks of trading fell into this range. Contrast that with the range between 10 cents to 30 cents. Here, we find that 30 weeks of trading occurred. That's a 900% differential from our lifetime average.
The "True" Fair Market Value of STEEM
The other dilemma that needs to be addressed is the definition of "fair market value." FMV is a loaded term -- it's a subjective assumption of what rational people will pay for an asset. This then segues into the natural question of what is rational.
Nevertheless, if we were to establish a fair market value of STEEM, it would fall between the 10 to 30 cent price range. Again, this is where most of the trading occurred. Most likely, a rational person wouldn't buy STEEM today at $4, and it's unlikely they would buy at the troll's FMV of 57 cents -- there's just very little trading established at that range.
But STEEM is also a burgeoning cryptocurrency. It's in an ever-evolving, always dynamic market. Thus, FMV is a fairly ridiculous proposition, especially right now with sentiment rising enormously (check out my other Steemit post -- https://steemit.com/steemit/@bullishmoney/steem-sentiment-index-implies-explosive-growth).
Whatever it is, FMV is a moving target right now. What I can tell you is what it is not -- price averages are completely deceptive in determining price rationality.