Thank you for your support. Without it, I wouldn't even be able to respond to these comments. My background in economics doesn't lend itself well to day trading. It is better served in stock portfolio construction, economic development and policy design, manufacturing or sales optimization, or even blockchain consensus design.
A lot of day trading today is momentum investing and sometimes this actually goes against economic models. For example, most economist would probably say that Tesla would be a better investment than Bitcoin. I would have said that. This would have been my analysis:
TSLA holds a dominant position in a new technology that will disrupt cars. Bitcoin is not the best money and its not even the best cryptocurrency. Its one of the slowest blockchains. It has high fees. Its difficult for normal people to use. The value of the coin is volatile and its not broadly accepted as a form of payment. TSLA has a self driving electric car that is fast and everybody wants one. However, if you invest in Bitcoin from the beginning and TSLA from the beginning you would be richer if you invested in Bitcoin.
Here is what $10,000 in TSLA would be worth since its IPO (June 29, 2010):
$1,841,817
Here is what $10,000 in Bitcoin would be worth since its ICO (January 3, 2009):
$1,317,970,908
“There are two kinds of forecasters,” said the economist John Kenneth Galbraith. “Those who don’t know and those who don’t know they don’t know.”
I know that I don't know :)
I think I can turn this comment into some type of short post on Leofinance
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I had to double check that it was a comment after reading it. In both instances, it is under the assumption that the $10k investment was held until now.
Statistically speaking, I don't think there are that many people who actually held Bitcoin since it's origin because as you've pointed out, it doesn't even do anything and isn't the best kind of money. However, with TSLA, there has been a clearer path from the onset and a very good head leading to project, so there seemingly is a higher chance of someone holding TSLA stock for the long haul.
Makes for an interesting post and investigation though. You could even check wallets of the oldest bitcoins(basically by tracking wallets with least activity) and comparing it to any data you can get about TSLA stocks to get the average profit made by either investor.
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I actually made mistake on the date for the comment. That figure that I gave you for BTC was not even all the way back to ICO. I push the back button all the way back and it actually only went to January 1st, 2011. If you go back to ICO, BTC makes even more money.
The fact that Bitcoin doesn't do anything makes economist hate it even more. Warren Buffett hates gold for the same reason. Gold doesn't do anything. The big thing I wanted to highlight is that the investment world can be strange and economics as a science tries to be rational, but the markets aren't always rational.
"markets can remain irrational longer than you can remain solvent." -Keynes
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I've been striving to grasp the madness. I see some projects with little or no use-case with high market cap and then real projects like Hive and Steem that actually contributes something have shitty value. It is perplexing.
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Well in this case Economics can provide some answers. For Steem and Hive the problem is the supply and demand of the coin. The staking mechanism / consensus that rewards (supplies) out coins is not in balance with the demand. The central question is why would you buy Steem or Hive? I think the logical answer would be so that your upvotes and post will earn you more tokens and you will have a larger influence when it comes to voting on the future of the platform. The more people bring in outside money into the platform the more the value of the Hive or Steem token will rise. The problem is the supply keeps getting created faster than people want to buy it.
Demand side for the people buying Bitcoin is different. A lot of the large investors in Bitcoin are institutional investors that are buying Bitcoin as a hedge against inflation. A lot of the gold crowd has also exited gold and moved into BTC. Many of the people who buy Bitcoin don't really interact with a broad range of other crypto products. All they know is Bitcoin and that they think it will just keep going up. They are really people who are just currency speculators that are trying to momentum invest. They aren't in it for the long term.
The supply side of BTC has a cutoff so people believe that there will be scarcity. That is not the case with Steem and Hive. Steem and Hive seemed to be printing money indefinitely and there just isn't enough demand. Leo on the other hand is pretty smart. The wrapped Leo allows it to be traded more easily on other networks and Leo is creating other products that should drive demand for the coin and that is probably why Leo is worth more than Steem and Hive on a per coin basis.
If I had to take a guess from my experience, I would say that 90% of the crypto market will fail because many of the projects are redundant and the market doesn't have room for more than one of those products in the long run. Just like nobody wants to use the second best social network or search engine. In some places there will be room for competition.
Such as the coins that will be used for remittance. There could possibly be two players in that market or more. Just like there is Western Union and Moneygram in the United States, but who uses Yahoo to search and who uses MySpace as a social network?
This fits in the broader theme of centralization vs decentralization. In some markets there are only one or two players and in some market there are thousands and there always will be thousands. So when you invest in a market its best to try to make a determination of what the state of competition will look like.
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This is pretty straight forward to me. So the issue is about creating demand for a product rather than just relying on "upvote and earn" as your marketing slogan. I've not actually read the whitepaper for Hive but the fact that it can be printed indefinitely certainly won't bode well for the traditional investor.
What do you think is the long term potential of Hive?
So I want to make a distinction between demand for the product and demand for the currency. I will use myself as an example. I have demand for using the platform in that I post a lot and I engage a lot. I like learning and teaching.
Each one Teach one
My demand for the tokens are slightly lower because if I bought more tokens I don't really know what I would do with them? To be fair, I am lucky enough that you delegated enough for me to post on here without having a cooldown because of resource credits, but I think you have delegated enough where if I had more tokens I don't know what I would do with them.
Demand for the product and the token are the same for some people. They post because they want to make money and they are primarily here to make money. For those people who feel like the token is going to be worth a lot then there is some financial incentive for them to come to this platform and post and try to earn upvotes. There is also an incentive for them to bring in outside cash into the ecosystem and buy more Hive so they can power up and earn more and compound those earnings.
The problem for these people is that the economics actually have two effects that are working against each other. Allowing people to post and vote and print new currency lowers the currency value because it creates more supply.
Outside money coming in to buy Hive creates demand for the currency which will drive up the price of the currency. The question is which two forces will win. The force that drives up the price or the force that drives down the price. There are more than two forces. I just use these two as examples that are tied together yet working against each other. A force that solves one problem, but creates another. After accounting for all of the forces. It seems that the forces that are driving the price down are winning. See the chart below:
The reason I split demand for the token and demand for the platform into to separate categories is that it allows the managers of the platform to be strategic and be targeted in how they think about the ecosystem and how they solve problems in the ecosystem. If you want the token value to go up you need to solve the problems in a way that drives prices upward. There is a lot to be learned from economic history about inflation. Many of the problems that I see in the blockchain are just repeats of traditional currencies. Decentralized money has already existed before. The blockchain sees the central bank as a problem, but the central bank was actually a solution created to solve the problems of decentralized banking. I think I will write a whole article about this :)
I think Hive and Steem as a platform have long term potential as a social networks. At the moment I do not think the the coins have good potential. You can have a valuable platform in that people are engaged and happy using the platform and still have a poor performing token because the tokenomics are bad. I think the tokenomics for Hive and Steem are not great
Literally all your comments are insightful enough to be a posts 😄.
So taking the analogy of the two forces: demand and supply, from an economic point of view, what do you think would be a decent means of improving token value? Reducing supply? Burning coins? Or aggressive marketing to attract outside money? Something outside this list?
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!ENGAGE 50
I keep finding out about these new tokens from you. It was in one of your post in Project Hope on Steem that actually brought me to Leo in the first place. I now see the Engage tokens, I love it!
Haha yeah, there are a lot of projects running on Hive. Have you ever used the Hive dex?
Link : https://hive-engine.com/
ENGAGEtokens.