I've been trying to figure out why SBDs are trading for well over a dollar. While meeting up with and talking to another Steemian, I had an epiphany that might go a long way in explaining the high prices. A recent post of mine listed three reasons that may be contributing to a high SBD price. I wasn't completely satisfied with these theories:
- People are seeing alt coins exploding in price, and they notice that Steem Dollars haven't moved up much. Without knowing anything about SDs, they buy them hoping they explode in price soon.
SDs are traded in Bitcoin.- If 1 SD is trading for 50,000 satoshis and the Bitcoin USD price doubles from $1,000 to $2,000, the price of SDs just doubled in USD terms without a single trade being made. Before, the 50,000 satoshis was worth $1, but now 50,000 satoshis are worth $2.
- Some traders don't want to sell their Bitcoin/alts for USD when they think the crypto market is going to be falling, but they don't want to be in any crypto. Therefore, they buy SDs expecting them to be more stable than other cryptos.
Regarding #1, I like to think people are smarter than this. But, it could still be the case for some people.
Regarding #2, I think this would be mostly self-correcting and SDs would revert back to $1 almost immediately. But, that's clearly not the case.
Regarding #3, this seems plausible to me, but have SDs actually been less volatile than other cryptos? Is there enough liquidity in the market for this trade to make sense?
In addition to these three reasons, @transisto gave this explanation:
The calculations involved to find SBD price in steem or btc has to be ongoing to be compatible with limit order matching exchanges. Add to that getting a poloniex account, accessing active key, withdrawing to special polo memo accounts, selling SBD for btc then buying back steem, sending back the steem to account, poloniex 2FA, poloniex email link, powering up the STEEM , The whole process is extremely convoluted and not worth it for those who actually earn the SBD, very small amount, very distributed
I believe this is a contributing factor to the high SBD price, but I don't think it's a sufficient explanation.
Why would it make sense to pay more than $1 for SBD?
The US government taxes capital gains. If you bought $100,000 of BTC and sold it for $1,100,000, you'd have to pay taxes on your gains of $1 Million. Depending on where you live, your tax bill could be over $500,000. You may want to sell your Bitcoin because you believe there'll be a significant price correction, but the $500k tax bill might give you enough reason to hold.
According to a CPA, selling your Bitcoin for another crypto is not a taxable event.
Consider this set of circumstances:
- You believe the Bitcoin price will fall 50%
- SBDs are trading for $1.20
- You won't be taxed if you buy SBD with your Bitcoin
- You believe you will always be able to get $1.00 of STEEM for each SBD
- You don't trust Tether
You take 10 Bitcoin and buy some SBD for $1.20. It turns out you're correct, and the Bitcoin price falls by 50%. You then take your SBD and convert it into STEEM. You take that STEEM and rebuy Bitcoin. You just turned your 10 BTC into about 16.7 BTC without having a taxable event.
Thanks. This is an interesting strategy, to me it looks like pair trade strategy where you short BTC and long steem dollar, and because steem dollar usually peg with usd at 1 dollar, normally it gives you relative low volatility when there is crash. I guess i will also look into steem/btc ratio see its trading range?
Hey, thanks for reading! It's great to have that floor of $1 worth of STEEM when holding SBD. Even if the price of SBD drops below $1, you can still get $1 worth of STEEM for an SBD. Although, when converting SBD to STEEM, you're subject to the 3.5 day price fluctuation.
Yes i find if u convert sbd to steem internally, it takes 3.5 days + the convertion price is somehow quite far off to what the market may suggest.but ofcourse if you go to market to exchange it then the floor may not be existence. I am lucky to convert some steem power at 1.1x todah :)
Let's say today you have 1 SBD and you convert it to STEEM. The system doesn't take into account the market price of SBD, it only uses the market price of STEEM.
Therefore, if over the next 3.5 days, the average price of STEEM is $2, you'll get 0.5 STEEM for your 1 SBD. It doesn't matter if SBD is trading for $0.70 or $1.90, you'll get 0.5 STEEM either way.
If you want to minimize your risk due to STEEM price fluctuation, you can break down your conversions into smaller increments. If you have 10,000SBD, instead of converting all 10,000 at one time, you may want to convert 500 per day for the next 20 days.
That is an important detail.
You get the amount of STEEM depending on the price in 3.5 days. But always $1 dollar worth.
This delay is not a bug, it's a feature!
This feature does two things:
It gives you one dollar worth of Steem, which can be traded.
But also limits the possibilities for day traders to speculate on the price of SBD.
In this way, the system has a built-in robustness.
That's real innovation, from where I'm standing.
I wish the price was at 11k sats still. I got real good value and bought a lot of other coins. Just to diversify. I wish someone would make sbd great again.
"According to a CPA, selling your Bitcoin for another crypto is not a taxable event."
This is not true in the US and is dangerous advice.
Upon further research, it seems like it's not really clear one way or the other. Here's an informative post on it. Damn, taxes are confusing! https://steemit.com/tax/@lpfaust/us-tax-considerations-crypto-to-crypto-trades-trading-bitcoin-and-altcoins
Honestly, I would not trust a CPA who would suggest that transacting one property into another is not taxable (aside from the very limited, very specific circumstances of 1031 transfers). Be careful...
Some interesting thoughts there... one of the things I've noticed is that the price of SBD seems somewhat correlated with the VOLUME of Steem being traded on the exchanges. As the Steem volume increases, so does the SBD price. My guess would be the relationship there is that when the markets are hot, there are more newbie speculators playing... and they may not realize that Steem Dollars aren't "just another alt coin" and inadvertently help run up the price. I realize that's pretty unscientific... just a hunch.
Thanks for your thoughts on volume, I'll have to look into that. In my last post on the topic, the "just another alt coin" was one of my theories. Based on the comments, it seems other people think that's a contributing factor as well.
The entire tax thing still confuses me a bit which is why I just send it over to my tax dude when I make a big trade lol. That being said I do believe if you hold your investment for over a year and then sell it your only looking at a fraction of the taxes due to it being a long term investment. However I could be wrong i'm no tax professional.
I'm not a tax professional either, but yes, I believe you're correct. The crypto market has been crazy though - some people have made 10X+ gains in a matter of months.
Whoa.
Really wish I had more of a head for this stuff (artist, philosopher.. ugh lol). xx
Haha, it took a long time for me to understand it, and I continue to learn more every day.
Great write up. It is confusing in a lot of ways. I don't trust Tether either and I had followed NuBits for a long time but they had issues keeping it pegged and then the market cap of it dropped way off. I guess everyone stopped trusting it.
Thanks! By "it is confusing in a lot of ways" what do you mean by that? Do you mean my post is confusing? Or the reasons for SBDs trading >$1.00? Or the intricacies of the system? Sorry for all the questions, I just want to make sure I understand what you mean.
I'm just saying it is confusing for people that SBD has went up to where it is and has stayed up. The interest on SBD has been adjusted to $0 so there is less of an incentive to hold it as well.
Ah I see. Yeah, that is confusing! I've put a lot of thought into it over the past month, and now I think I understand why it's happening.
That's a great analysis in terms of risk/reward for tax purposes.
Thanks for this.
Thanks for reading and taking the time to comment!
This is an interesting concept and I hadn't thought much about it to be honest. Maybe I should take some more time and research this a bit more!
Interesting point about capital gains. It's not true in my country because capital gains triggers on any kind of disposal, but it's seeming like one could avoid a lot of tax with this method.
Are you subject to high taxes where you're from? Ireland if I remember correctly?
It's 33% of the value of the gain at the point of disposal. I wrote a post about it a while back. Good thing is with Steem Power, you can benefit from it without ever having to dispose of it.
Ah okay, I'll have to take a look at that post.
This sounds like it could work but SBD has also been incredibly volatile. Trading from $1.00 up to $1.75 and everywhere in between. It's rises and falls have also coincided with BTC's so I'm not so sure if it would be a solid way to maintain a value tethered to USD. It would be great to have a crypto that does this of course. Let's hope one can prove that case soon
The amount you're willing to pay for SBD will be completely dependent on what you think the crypto market is going to do. If you're an ETH holder, and you think the price is going to decrease by 90%, you'll be willing to pay a lot more for SBD than someone who thinks the price of ETH will only fall by 50%.
True true, but it hasn't been anymore immune to the same swings as other currencies have faced. That's really my point. Another option could be "Tether", which is supposed to also maintain a price of $1.00. It doesn't swing as wildly, between $0.80 to $1.20. Still evaluating it myself since it could be a place to go when the market drops. Anyway, good analysis. Keep it up.
But the sbd can as easily drop back to a dollar or lesser, correct?
Yes, in the hypothetical example I gave at the end of this post, the worst case scenario is the SBD price falls from $1.20 to $1.00 or less. Even if the SBD price falls to $0.70, you'll still be able to turn your 10 BTC into 16.7 BTC, assuming everything else remains the same.
However, if SBD only falls to $1.10, you'd end up with more than 16.7 BTC.
I had this same discussion in a blog several weeks back and the reponse ingot was here
https://steemit.com/steemit/@andrarchy/steemit-101-steem-steem-dollars-steem-power#@andrarchy/re-sanees-re-andrarchy-steemit-101-steem-steem-dollars-steem-power-20170607t210552311z look for andrarchy response to my question .. essentially developers want to address this problem at some point
Glad I came across the blogpost since I am going to be loading up on SBD very soon, you going to save me a lot of money and headache. Thank you shenanigator.
Thanks for checking out my blog.
Please make sure you understand everything before jumping into this. Also, SBDs are currently trading higher than the hypothetical example I gave in this post.
My posts aren't intended to be investment advice. Rather, just my thoughts on the way I view things. I do hope it gives people another perspective, though.
thanks a lot for this blog i could use it to understand steemit better
Very interesting indeed.
Wow!
This is a good idea shared this time.
Thanks for sharing
Upvoted!!!
Thanks for the support! I think it has the potential to be a good idea if you think crypto prices will see a significant pullback.
very good info :)
Seems like a pretty sounds strategy actually. I'll be looking into this idea. Thanks for sharing it.
Thanks for checking out my post!
this is great news!
very good info and stuff ,
i hve followed and upvoted u
pls do the same for me
to help each other more ;)
Thanks for the support!
amazing strategy
I love short term trading but I am a full time emplyee
Good article and thanks for the sharing and tip @shenanigator
Thanks for reading!
Very good post that explains the need to invest in Steem Dollars...I think that the steady price of steem is good and hope that it will gradually appreciate as many people join steemit. Powering up helps steem too isnt it?
Hey, thanks for reading. If you have big gains in other cryptos, it might make sense to buy some SBD.
Regarding your question, powering up your STEEM in lieu of selling it will certainly help the price of the token because it puts less downward pressure on the price.
Great..am all for powering up
Nice post. I discussed tax in Australia in one of my previous posts. It is all about triggering (or not) that tax event! Also starting to think of ways that people may convert from Crypto to Cash (obviuosly the larger the amount the harder it is). https://steemit.com/tax/@strapped/crypto-to-cash-and-tax
On second thought it does not make sense to pay a premium on sbd. Steemit inc will see to it by flooding the market with it. So holding sbd is just plain nonsense. Though i miss the good prices.
Why do you say Steemit, Inc. will flood the market with SBD?
Even if that were to happen, in the hypothetical example I gave at the end of this post, the worst case scenario is the SBD price falls from $1.20 to $1.00 or less. Even if the SBD price falls to $0.70, you'll still be able to turn your 10 BTC into 16.7 BTC, assuming everything else in the example remains the same.
Brilliant!
tnx for your post ,
it is helpful for new steemians like me.
I like your style and ease of explanation. Following for more as I step out into my crypto journey :)
I had to come read this post in full. This makes complete sense and I would not have thought of it. Following you for more info like this. :)