This post discusses the choice crypto-traders have when it comes to transacting, and whether users should withdraw STEEM or SBD to Bittrex.
What is a Perfect Market?
A Perfect Market is a theoretical and Utopian economic principle that states prices for a given good or service are set such that there is no opportunity for arbitrage, due to a multitude of factors including an excess of buyers and sellers, perfect information, and rationale buyers. In a perfect market, a single price exists in the market; buyers and sellers have no choice but to accept the price set by the market at a single point in time.
If you're looking for a real-world example of a perfect market, keep looking. Those guys only exist only in economic textbooks and in the dreams of Keynesian professors. Imperfect markets are the norm. Markets in the industrialized world range from near-perfect to extremely imperfect. They present opportunities for price gauging and arbitrage. Most relevant to this posting, imperfect markets require a close analysis prior to transacting.
Cryptocurrencies and the Imperfect Market
A limited number of exchanges are available for cryptocurrencies, especially when looking at the long-tail of currencies including STEEM, SBD, and others (pick your poison - BAT, SC, ANT, etc.). Importantly, these exchanges operate independently of one another. The bids and asks on these exchanges are based solely on the bids and asks of that site's users; in other words, Bittrex users may be bidding up BTC while Kraken users are holding it steady.
Current example: The price of Ethereum on Coinbase is currently $402, while on Kraken it is being sold for $388 and Bittrex for $374. Surely there is an opportunity for arbitrage, no?
STEEM Internal Market, SBD and Bittrex
There are many SteemIt posts that explain how to withdraw funds to Bittrex wallets. However, few explain the specifics around price. Should you be withdrawing STEEM or SBD to Bittrex to convert to BTC? Which leaves you most well off? There are three independent markets in play.
1. The SteemIt Internal Market - dictates the rate at which you can exchange STEEM for SBDs on SteemIt.
2. Bittrex Rates for (a) STEEM to BTC and (b) SBD to BTC - dictates the rate at which you can exchange STEEM and SBD for BTC
Let's add some numbers in for a real world example.
SteemIt Wallet Balance
100 STEEM
Internal Market
$1 SBD = $1.2 STEEM
Bittrex BTC Rates
$1 SBD = ฿ 0.0006
1 STEEM = ฿ 0.0008
Under this scenario you have two options. How should you withdraw your funds to BTC?
(1) Send STEEM directly to Bittrex and convert to Bitcoin
(2) Exchange STEEM for SBD within SteemIt, send to Bittrex, and convert to Bitcoin
Scenario 1
100 STEEM x ฿ 0.0008 = ฿ 0.080
Scenario 2
100 STEEM * 1.2 = $120 SBD
$120 SBD x ฿ 0.0006 = ฿ 0.072
Given the numbers presented above, it would make more sense to send STEEM directly to Bittrex rather than converting to SBD. Conversely, if you hold SBD, you would want to convert to STEEM prior to sending to Bittrex.
Obviously, these numbers are always in flux. This exercise was meant to demonstrate the (simple) calculations that must be done before transacting in any cryptocurrency. Do any STEEM-ers have related stories?