Steem Price -40% in the last 3 Weeks - What does this mean for Steem(it)…

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I have come across a number of Steemit users raising concerns over the falling Steem price, and have decided to address these concerns. Having reached Week 4 of my Steem Statistics Post, I have a interesting perspective on this, and one which I believe provides a very good illustration of what is going on.

Steem Price Action:

Now, in terms of $USD, over the past 3 Weeks, Steem Prices are down nearly 40%. This is a big decline, and worth while addressing. That being said, things are not that simple..

Source: Poloniex

• Between the 4th July and 14th July prices increased 1500%:
  When you consider this, the recent decline in prices seems a little more trivial than first appears. There are a combination of factors that are contributing to this falling in prices, but the market getting ahead of itself is certainly one of them.

• Overall Steem Supply has increased 15% Over the past 3 Weeks:
  This has a dillutionary effect on the value of Steem. All of this increase has gone to Steem(it) Contributors and Steem Power Holders, and although it feels like a gain, shouldn't impact the Market Cap of Steem. This means that in real terms Prices have fallen 30% Month on Month, not 40%.

• Bitcoin Prices down 12% in the last 3 Weeks:
  Another consideration is that Bitcoin, which essentially the cryptocurrency benchmark, the same way the $USD is a benchmark to commodities worldwide, has fallen 12% through the same period. In light of the Bitfinex hack, the DAO debacle and the Steem(it) hack (which unlike the other 2 was solved with minimum fallout) I have noticed a broad sell off in my Cryptocurrency holdings this month. I believe that it is reasonable to consider this 12% fall in the real Steem Price Calculation.

If you agree with my deductions above, this takes the Steem price fall near to 18% in real terms in the last 3 weeks. This seems far more digestible than the gross headline figure of 40%.

What has caused this fall in prices:

One thing we will all certainly agree on is that, by whatever measure you use, prices have fallen. I believe there are a number of contributing factors to this market move…

Market Overshot

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This is a good place to start. The market certainly got ahead of itself. Generally, as soon as FOMO (Fear of Missing Out) gets thrown into the human psyche, markets become irrational very quickly.

Was Steem overvalued?

I think so. At one point we stood around 10,000 users with a £300m market cap. This was not sustainable, and either user numbers needed to ballon (which they didn't quickly enough), or the price of Steem had to fall..

Supply

Image Credit: Pixabay

What is Liquid Steem: Liquid Steem is another word for Steem. Liquid Steem is Steem that is available for transfer/exchange/trade. As we all know, Steem Power doesn’t allow these actions, and this is where the vast majority of Steem is held. Liquid Steem is created by users either Powering Down or Converting Steem Dollars.

Users Powering Down or Converting Steem Dollars over the past 3 weeks have caused Liquid Steem, as a % of all Steem in Circulation increase from 2.84% to 3.96%. This doesn’t sound like much, however this actually represents a 61% increase in liquid Steem over the past 3 weeks. This is significant because, it is only this Steem which is tradable, and thus it is this which sets the price of Steem.

A 61% increase in supply in one month is always going to put prices under pressure.

This is exactly what has happened. Most of this increase has come from large accounts powering down. It doesn't take many of these users to begin to sell, in order to create an imbalance in the market. It is worth mentioning that, the increase in liquid steem will continue, but at a decreasing rate (in % terms), so we can expect this impact to diminish overtime.

Demand

Steemit is not mainstream by any stretch of the imagination. You only have to look at the trending list to see that the main focus of the user base is Cryptocurrency/Anarchy. This is not a problem, however I do believe it has began to limit growth in the short term. User number growth (based on weekly active users) is up 13% in the last 3 weeks. This number however, has began to fall this week, with weekly active users falling from 21,000 one week ago, to under 16,000 this week.

NOTE: These numbers are difficult to make 'heads or tails of' as changes to the Steemit ecosystem have directly affected bot's operating on the platform, which have thrown these numbers out. It is however easy to deduce that, user number growth has declined over the past few weeks.

This is certainly weighing on Steem prices. I think it will take some time to transition into a more board content base, which is needed to retain a larger user base. This is however, just a small growing pain in my opinion. The Steem community needs to start promoting more mainstream content in order to support user base growth in the medium term. Until this happens, this will stifle demand for Steem. The value of Steem is in the underlying network, and the level of difficulty to earn them as rewards. Increasing user base is thus key to increasing the value of Steem.

Dilution

I have already touched on Dilution a number of times in this post. Something for all Steem Power holders to bear in mind is that, in order for you to lose value in Steem Power over the next year, Steem prices with need to fall more than 70%. This is because, Steem Power Rewards are currently running at around 312% for the next 12 months. This is certainly a consideration for why Steem is under pressure too. If you have done the maths, it is not worth holding on to Steem for the long term. You either need to Power up, or Sell.

Summary

As you can see, there are a number of factors that impact the Price of Steem. I first of all don't think that the decline is anywhere near 40% in real terms, and if you agree with me that we are closer to 20% (for Steem Power Holders), this is not a significant decline in prices.

Cryptocurrency projects generally have an investor base with a very short term horizon, which has been the downfall of many projects. I think it is worth remembering that Steemit is still in beta and there is a long way to go. This is an exciting project with much upside potential, however it's going to take time.

If you really believe in Steemit, you need to do your bit...

Contribution, Curation and Promotion by all users will help Steemit edge closer to taking on Reddit. We need to all look to the long term aim, and as long as we keep moving towards it, the price of Steem will take care of itself.

With regards to my Price Prediction: I do think we will go lower over the next few days/weeks, the trend is strong and users continue to Power Down, which is increasing supply of the sell side.

This does not concern me, as my horizon is for the next few years. Let the weak hands sell their Steem, a couple of weeks of low prices won't kill this project. I still see 'right now' as a great opportunity to build a stake up in the next social media giant

Only the strong hands will remain

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