A Steeming Bubble
Thursday July 21, 2016
In my mass adoption as a Ponzi article I noted that a market requires whales in order to have liquidity at increasing prices. With shallow order depth, an exiting whale will crash the market, it’s only a matter of time. After Steemit made Qntra headlines I did some research and posted a comment indicating the sheer lack of liquidity for such a high price.
The next day, STEEM was listed on Poloniex, so I posted on Steemit-itself warning users not to irrationally trade; 24 hours later, only 3 users bothered to comment, the rest likely deafened their ears to resist acknowledging reality.
The reality is that most whales being created on Steemit through mediocre blogging, do not understand fundamental market mechanics. In fact, I would bet that a minority of Steemit users have even read the obfuscated white paper. This can lead to a rally among smaller speculators that inevitably produces a bubble. It’s similar to playing musical chairs as a kid, as prices become nominally higher, a chair for a person to exit at a “fair price” is removed. As described by a Trilema quote in a previous article:
The situation in the market was becoming macroeconomically concerning, in the following sense : major holders were done selling, the vast majority of trading action consisting of trades among newcomers brought in by the recent significant press exposure. These people had little if any understanding of Bitcoin and not much inherent interest in it other than “it’s the new hot thing to make money online better get in at ground floor” sort of bullcrap. Having fiddy thousand such lemmings trading with themselves on ever-increasing nominal prices is practically a game of musical chairs, and in any case no different from the numerous “bitcoin gem” type Ponzis that have sprung up recently. Apparently this sort of nonsense is somehow very familiar and very comfortable to the clueless consumer mind.
This is the same exact situation occurring in the STEEM markets right now.
The Steemit community has very few if any experienced investors, and as such most involved in Steemit who have realized this problem think that adding Steemit to more exchanges is the obvious solution. Although it adds opportunity for more whales who are only interested in speculating to enter into STEEM trading, it unfortunately adds more exposure to the STEEM bubble if order depth remains shallow.
Right now STEEM is doing a disservice by advertising post payout amounts in dollars as this may not be what the market will realistically pay for large amounts of STEEM or STEEM dollars. Not everyone using Steemit can exit the market at the advertised amounts on their posts’ payout ticker. If everyone exits at the prices quoted currently, the market price goes to 0 (and probably exceeds the order book), and everyone makes a fraction of the advertised amount. If this isn’t sounding Ponzi-like yet, you maybe suffering from bagholder syndrome.
Enter Qntra, which was founded Autumn of 2014. The startup soon made an IPO and was subsequently listed on MPEx. For every word written by a Qntra author 2 shares are created. One publicly traded share is issued to the author and one non-publicly traded share is issued to the leadership/owner’s block. Investors can choose to make bids for publicly traded S.QNTR shares on MPEx, thus authors can sell their shares directly to investors for bitcoins.
Over the past two years, Qntra authors have gotten paid for their work directly by MPEx investors as advertised. At a later time, if someone wants to buy the whole of Qntra, shareholders will get paid for their shares. If Qntra realizes a monthly profit it may be distributed to shareholders at the discretion of the leadership, or kept as an asset.
Qntra is much more powerful than “just a news site”, for far too many reasons to enumerate in this single article. However it is of note this blog solely exists due to the readers’ response of my Qntra authorship.
Steemit perhaps stole Qntra’s model and obfuscated with a “blockchain”. The failures are obvious, since contrast to Qntra, Steemit wishes to use pure socialism or the esteem of the mob to monetize. As money has trickled in from gullible Bitcoin investors and overly eager speculators, STEEM price has artificially inflated.
The explanation of Qntra shares helps to explain a similar but unnecessarily obfuscated process in Steemit. When a Steemit user gets a payout, in order to spend their money, they first transfer their STEEM tokens to an exchange, and then trade those tokens for bitcoins, which can then be spent on tangible goods. In essence Steemit users are getting paid by Bitcoin investors via exchanges, similar to Qntra. However these Bitcoin investors interested in STEEM are few and as such there is less than a total of 1,000 BTC worth of bids for STEEM across all exchanges.
If someone holds a large stash of bitcoins, what would compel him to ever buy STEEM? (outside of speculating of course) In the case of Qntra, even before revenue is realized, the company may sell for more than investors paid per share. A STEEM investor never has ownership over any of the content published on Steemit. For them buying STEEM is essentially a gracious donation to content creators.
The only hope for Steemit is incentivizing professional content creators to contribute. Professional filmmakers, television producers, comic authors, etc., would be the only content rational Bitcoin investors would be willing to purchase. Even in this case due to the mode of monetization, awarding content payouts will always be optional.
A professional television producer creates a pilot with a $10,000 budget. After a great deal of market testing, the producer realizes the show has great potential with his target audiences. One option for distribution is he can release it for free on a service like YouTube and embed it in a Steemit blog post. Here he is at the whim of generosity of STEEM users. It’s risky distributing in this channel as STEEM users are clearly irrational and won’t pay a realistic price for consuming the media. Another option is the producer to sell it to Netflix as an exclusive for $1mn up front and a possible royalty deal after a certain number of episodes aired. The latter option for the producer will likely prevent him from posting the content on Steemit.
It seems it would be very difficult for Steemit to incentivize professional content creators directly.
When Steemit eventually collapses like the Ponzi it is, Qntra will continue to operate. It is unfortunate for gullible bagholders of Steemit that all the time they’ve wasted contributing to a Ponzi scheme, they could have spent writing for Qntra.