From The Beginning Of Steem Times – Did Steem Inflation Push Down The Price?
Some days ago I calculated the real inflation rate of Steem and a bunch of other cryprocurrencies. The result was: the Steem supply (the number of Steem in circulation) grew 20.47 percent on year/year basis, that was the second highest value in a group of 17 coins. (On the top with Binance coin, 21,41 percent.)
Since the beginning of Steem times
That supply growth is called inflation in the crypto-space. Purely theoretically, if no other condition changes, 20 percent more of any goods or assets, with the same unchanged demand, could mean a 20 percent lower price. But as I wrote, in reality, the price of some cryptocurrencies with high inflation was increasing, and some with low inflation fell a lot in 365 days. There doesn’t seem to exist any real correlation – at least, not in the last 12 months.
Today I took a historical look and drew some charts since “the beginning of Steem times”, from April 2016. In the beginning, there was a lot of inflation in Steem, the initial supply of 4.4 millions of Steem jumped to 224 millions until December 1st, 2016. That is a lot, 5100 percent, so we can call it hyperinflation with a reason. The price, after a quick, temporally hype, fell from 88 USD-cents to 15 cents. (But the market capitalization, that means, the value of all existing Steem coins, was still nine times higher than at the beginning, appropriately 34 million dollars.)
Is moderate inflation O. K.?
November 27, 2016, the “Hard Fork 16” put the new inflation rules in function (9.5 percent p. a., and slowly decreasing, by approximately 0.5 percent every year). The inflation slowed down considerably, although, it often stepped over 9.5 percent p. a. since then. The price reached new lows in next year (7,2 cents in March 2017), but the fall was no more so strong as in 2016.
Since December 2016, I see no more clear correlation between the Steem emission and the market price. At least, looking at these graphs. I think, the chart is telling us that moderate and predictable inflation can be tolerated by the market, it should not inevitably influence the prices. Or if it is influencing, only in a small extent which you can’t detect clearly (unambiguously). Prices itself are too volatile to measure the factors behind.
The Steem and SBD prices of the end of 2017 and beginning of 2018, in the “big hype” show us that in a similar hype everything is possible. Totally regardless of supply, the prices exploded like hell. There was a smaller, but very similar shaped explosion on the chart in Summer of 2016. It seems to be that in a hype, people buy all coins, in a crash, they sell all coins. It’s not always necessary search for rational or logical reasons, the behavior of the crowd can be totally irrational.
Some Steemians are blaming the SBD/Steem conversions for the fall of Steem last year, and looking to the chart, that correlation seems to be possible. As the supply of SBD (red line on the first chart) surged from the end of 2017 until approximately the October 2018, Steem price was moving in a downwards path. In the last 5-6 months, SBD supply is decreasing and Steem recovered, stabilized. But due the fact that SBD market capitalization (total value) is 9.2 million dollars and Steem capitalization 133 millions, I suppose, SBD/Steem conversions are also only one part of the story. Aren’t explaining all the price moves, in my humble opinion based on common sense.
New Steemians to buy the supply
The really important question could be if we can attract more Steem buyers, newcomers to Steem world, or not. Buyers can generate 1-2 orders of magnitude (10x, 100x) more price changes than the actual, moderate supply growth. As we saw it the in golden age, in the boom of 2017/2018.
No “proof of stake” cryptocurrency can be made without inflation – I read somewhere. Maybe no cryptocurrency at all. Of course, miners or witnesses need stable income, and the transaction fees can’t surge to the level of fiat transactions, right? The question is, stays the inflation stable, moderate and predictable? (Steem operates a complex system set together from “delegated proof of stake” and “proof of brain”.)
(I read an interesting, but pessimistic opinion about the inflation of proof of stake systems on Bitonline.)
(To improve readability and make comparisons easier I divided Steem supply changes by 10 /blue line on the first chart/.)