An Economic Analysis On The New Steemit Changes

Before I begin I want to say that I am only going to look at the changes that I think are going to affect the supply or demand of the actual currency in a big way. I will give my prediction on what I think it going to happen, but take in mind I could end up being completely wrong. President Truman once demanded out of frustration, “Give me a one handed economist” because on one hand something could happen and on the other something else might happen, this is the nature of economics. There will be more than one force at play here, so predicting which one will win out especially long term is extremely hard and mostly luck based.

I will start off saying that I think the proposed update is a very good step forward and addresses many of the problems that have been causing the Steem price to fall recently. With lower payouts and a lower Steem price, we have been seeing less people wanting to take part in the platform and think about investing. This is a chicken and the egg problem in the way that we need some higher payouts to attract newer users which would have them invest and raise the Steem price, but in order to get those new people we need a higher Steem price. So the steps that are being taken to address these problems are definitely in the right direction. I am going to skip the effect steem dollar conversion, miners and equihash changes will have mostly because I don’t know if they are going to have little or any and I know too little about the changes.

First let’s look at the new cash out period which went down from 102 weeks to 13 weeks. Many see this as a massive problem and think it will tank the Steem price as everyone will dump all they have immediately, which could potentially happen but I think that something like the scenario I am about to explain will more likely happen. I think in the short term, we are going to see two types of people. The first type is one who will cash out Steem immediately, and the second type is someone who thinks the price is too low to cash out so will hold for a period of time. I fully expect the price to fall in the short term, but once that Steem has been accumulated on the market at low prices, the lack of an increased supply will raise the price. As I believe Dan mentioned, people are more likely to power up their Steem now as well because they don’t feel like they are trapped in a system for two years, which in crypto time can mean the end of a project. I think that overall this is a very positive change.

Next let’s look at the drop of the inflation rate, which people almost universally think is a good idea. In the long term it will lower the supply substantially and lower the effect of people cashing out on the market actually have. However, that being said, the drop of interest paid on accounts that power up Steem also lowers the incentive to hold Steem power at all. The good thing is , there will be a sort of pressure on those holding large amounts to produce content or curate if they want to keep the amount they have. There have been many early investors who haven’t even engaged with the platform for months and although they will probably be the first to cash out, the platform’s steem power will hopefully become more distributed amongst a larger base. Overall I think lowering the inflation is a big incentive for people to invest into the system because the selling pressure will slow down immensely.

Finally let’s look at the new changes to where the inflation actually goes which is 75% to curators and authors 15% to Steem power and 10% to miners. Im not sure what the previous breakdown was, but having the bulk go to content creators is definitely what we want to do to raise demand. If new users see the amounts of money that some of the content creators are making, they will either join the platform or cross post their articles to our platform as well. Being able to share these high quality posts will bring in new users organically. And raising the post amounts will keep content creators here as opposed to elsewhere.

Overall my prediction is that in the short term (1-3 months) we might see a price drop, but after that point if we can continue to bring in new users and content creators the price will raise as the selling pressure will be lower and many of the early investors that have been doing nothing but cashing out will be gone. Getting rid of the sell pressure and controlling the inflation for those cashing out is in my opinion the most important change that this update will provide and I think long term is the best way for the platform to survive. Im here for the long haul, I won’t stop making content, so you don’t have to worry :)

-Calaber24p