CASHFLOW OR CAPITAL APPRECIATION? - WHAT IS THE TRUE VALUE OF STEEMPOWER?
Not too long ago, I was a paycheck-to-paycheck marketing guy who had an almost "unhealthy" obsession with cryptocurrencies. Fastforward 3 years and my life has become a completely different picture. Because of L.U.C.K (Labour Under Correct Knowledge) combined with the perfect timing, I was able to position myself among the top 100 hodlers of STEEMPOWER since May 2016.
Even thou I know more than 99% of normies about cryptocurrencies...I'm still trying to grasp the true value of things. Below are some of my reflections and I invite you to pitch in the comments section to help us all understand what we are dealing with.
WARNING: I will be upvoting good comments generously
CASHFLOW OR APPRECIATION?
What is the true value of STEEMPOWER(SP)? I'm asking you this because since HF19, the power to direct income any way we want has been multiplied. It also never been as easy to climb to "dominance hierarchy" of the STEEM ecosystem.
Is the market really taking into account the value of SP or is it oblivious to it? Is SP more valuable as a source of income than it is as a source of capital appreciation? What would SP be worth if it was a dividend stock? These are all questions that I have.
Influence, Power and Income VS Profit
Let's say you put $1000 in an ICO and you make a 200% within the 2 weeks. You come out with $2000. You made a $1000 profit with which you can invest or spend as you please. If you don't depend on that money to live, you can try to invest it in another ICO and hoping you don't make the wrong move at the wrong time.
Fundamentally, playing that way is gambling. You never know what your impulse or wrong thinking will bring you. But if you are good and lucky, you can keep making profit that way.
Let's compare that with STEEMPOWER. In exchange for locking in your funds, you get a fix interest + the ability to direct income wherever you want...even to yourself. You don't have control over the value of STEEM and how much you can send in USD terms but you can create over time a steady stream of income via upvoting your own content and curating other people's post.
Someone who has $1000 worth of SP can send about $75 of income per month. (10 votes of $0.25 per day) That's 7.5%!
For me...who value cashflow, security and reliable returns...Steempower seems like a no brainer compared to all the other speculative investments out there.
The Crux of the Matter - What Is The Valuation?
I'm not an financier or an investment expert and this is why I'm asking you this:
What is the real value of an asset that allow you to send $100 ten times a day to anyone you want? (or $30,000/mo)
Since we cannot do an apple to apple comparison with other types of assets out there, I've looked into How to generate $1000/month in dividends
Here was the answer I found:
Assuming that a portfolio constructed today yields 4% and has a future annual dividend growth rate of 6%, investors need a $300,000 lump sum investment in order to generate $1000 in monthly dividend income.
So let's say that SP is somewhat comparable to a dividend stock. To have the same results as one who can allocate $30,000/mo via Steem...one would need to have 9 Million dollars in the stock market. (I've checked with annuities and it's very similar)
From the personal numbers that I've gathered, one would need about 30 times more money on the stock market in a dividend portfolio. Is the market taking that into account? Are you when you wonder where you should put your money?
Please Share Your Thoughts Below
I have the habit of rewarding good and thoughtful comments that help me clarify my thinking and everyone elses. Please correct me where I am wrong and let me know about your strategy to acquire SP if you have one or why you would rather invest in different cryptocurrencies.
Let's Steem it up!
I would have to agree with you that the reason why people are invested in Steemit through Steempower value cash flow more than capital appreciation. Personally, I value Steempower more so than the capital appreciation of Steem simply because I prefer consistent and reliable income so I can leverage on the future cash flow to acquire more assets. By snowballing, what may seem like a trickle will eventually become a stream then to a monsoon river.
However, from an investment point of view, it's hard to actually evaluate the intrinsic value of the platform Steemit since its value proposition is unlike any products we've ever seen on the market so far. Current valuation model relies on discounted cash flow where the interest rate plays a vastly important role on current valuation (I refer to investopedia for the formula).
Alternatively, you can also calculate valuation via dividend discount model. Both ways of calculation should yield you a different valuation.
Now, the fundamental assumption for using such models is that the business has a "proven" history of the business. In the case of Steemit, what is the value proposition that it's providing to the marketplace? Is it somewhat like Facebook where it's generating advertisement revenue? Or is it like Twitter? (Note, Twitter haven't really been able to generate revenue that's why its stock price is free falling)
I would have to say that Steemit is creating a revenue stream through user acquisition via tokenization. The valuation model that I mentioned depends on actual "fiat" revenue. Since there's no way to actually value Steem directly (you have to trade Steem for bitcoin and then to fiat), the models don't really work in this context.
That's why financiers and many banks are slow to adopt blockchain technologies and cryptocurrencies. There's simply no way to actually value the marketplace other than pure speculation. From the risk perspective, investing in Steemit like investing in a pool of mud: it's extremely risky and the outcome is very very unclear.
Besides, if we were to evaluate Steem dollars like fiat, then the runaway inflation of Steem also pose a huge problem (think of the returns of investing in Steempower like interests gained in a bank account). Honestly, banks truly truly hate risk unless they know for sure that they can make money with a high probability of success. Furthermore, cryptocurrencies are a threat to traditional way of banking which makes bankers detest them even more.
That's why most bankers would dismiss Steemit as a scam and a Ponzi scheme. I would say treat any investment, be it in crypto or traditional asset, as money you are willing and can afford to lose.
My 2 cents worth even though I did not work in the investment banking department.
Very good comment. Just want to clarify: the inflation is only 10% per year...it is no longer as it was in the beginning.
Inflation hurts everyone and people who keep harboring thoughts about "free money" should banish such ideas. The reason why people flock to Bitcoin is simplying because it has the value proposition to function much like "gold."
Scarcity is not always a bad thing though. I look forward to read more high quality post from you and engage in though provoking discussions. :D
Also, the inflation of any currency, be it fiat or crypto, needs to be justified by its demand. If there's no demand then on the long run, its value will be essentially worthless. Now, if we were to treat steem dollars as a "proxy" for fiat money, 10% rate of inflation seems extraordinarily high.
Inflation of the Euros and US dollars are below 5% per annum. If the number of active users stop to grow, it will definitely hurt people who are deeply invested in this platform.
Bitcoin's inflation rate was 30% to 50% before 2011. I think we are okay.
Future expectations for inflation are also critically important for a currency and everyone knew the disinflationary path that Bitcoin was coded for. I'm not sure we can say that as easily about Steem, can we?
U.S. Inflation averaged 1.9% over the past ten years. I don't think the Euro has been much different. 10% inflation per year causes your purchasing power to drop by half every 7 years, not good.
I also find it difficult to assess Stem as a way of earning. It's not known what price will be in his tokens in a year. Yes there, even after a week!
@cryptoctopus your comment about ICOs and gambling is spot on. This is no different from the early 2000s tech boom when IPOs on websites went for insane amounts of money.
The idea that you put forth about what it would take to have $1000 dividend monthly is what struck me. Steemit isn't a platform on which you make money doing nothing. Dividends in the stock market are effectively you putting your money in the stewardship of others. Increases on Steemit are directly tied to your own decisions, which gives an added layer of freedom and, on some level, mitigates risk.
Good post, thanks for organizing some thoughts around this. This post could very much be used when friends or family ask, "Why Steemit?"
That is why I am excited sharing Steemit to my family and friends 😀 I am new here and full of hopes. 😀
Thanks for the compliment @chefcryptoshark
Well written @cryptoctopus and certainly bringing the focus of the community where it should be - on investing in ourselves as a whole, investing in steem power.
Let me build a little on what you are sharing by adding something maybe small but of great value.
Dividend stocks payout a small percentage of income. Steem power as noted is paying out a large sum (7.5%!). A big difference. Here is a much bigger difference. The majority of dividend paying stocks are not growth plays. Rather established corporations giving back to shareholders not through late expected future growth but through dividend payouts. But Steemit...
Steemit is a ultra growth play and by investing in Steem Power you not only give yourself the ability to create more growth in your investment but the future growth of Steem alone is not quantifiable. Yes the early adopters have seen exceptional growth already but starting out today as a new user you are still an early adopter and are set to see huge growth over the years ahead.
Good point. We win both ways. And if anyone thinks we had phenomenal growth wait until there are millions of daily users! (We are at about 20k a day right now)
20K a day is awesome! I have only joined and began spreading the word. This article inspired me to write about what 7.5% growth can do (you were mentioned of course and linked to!) for us as an investment.
I think it is very relavent to the readers of this article too (if you don't I greatly respect that just let me know and I will remove it), https://steemit.com/investment/@jordanlindsey/how-investing-in-steem-make-you-a-millionaire-compounding-7-monthly
In my position using SP to generate Cashflow make the greatest sense.
However I was fortunate enough to stock up on SP before the massive bull-run we're currently in. Generating cashflow means I don't need to try to second guess what the market is going to do.
Any sideways or upwards movements in STEEM means good weekly returns if you have a decent amount of SP. If you enjoy posting and write well it's a no-brainer to hold on to your SP. Even if the Steem price drops, the returns are good. If Steem completely crashes, you have Bitcoin and/ or fiat to pick up cheap Steem with.
Ultimately, I don't want to spend my life trying to second-guess what the crypto-market is going to do. I'd like to earn doing something I enjoy and have a major say in how much I'm compensated (rather than having to rely on the whims of others). SP offers that.
Sidenote: I'd caution against greed. It's important to remember that any rewards allocated on the Steem network are subject to the implied consensus of the community. Systematically allocating disproportionate rewards to posts/ authors that offer little value can quickly backfire. It's inevitable that people will start to downvote those who take the piss. I think as long as you're prepared to offer value, rewarding others that offer value and not be a complete dick in the process, you're golden. Afterall, the best way to increase the long term value of your capital is to ensure Steem/ Steemit can continue to attract and retain quality content creators to the platform.
I completely agree with you. We are in a big game with a lot of diverging opinions about what is okay or not. I just try to not poke the bear too much.
dividend certainly not always guaranteed to increase every year however, once a company has the reputation of delivering reliable dividends that increase over time, then the company start working hard so that it dosen't disappoint the investor.If we start with a penny on day one and double our"account" each day, we would be a millionaire within 28 days.
I think steem is still in the process of getting more reputation once it does it would be worth anything.
Still i can't say how much it would be worth
Absolutely...there is a point at which the dividend analogy fail.
One neglected aspect is that that $100/day rate is not a steady state and will trend down until we find equilibrium.
People are obsessing about the wrong things -- we need for people to have a reason to BUY Steem and HOLD Steem in order for it to maintain value. Whether that reason is advertising revenue that goes only to SP holders, or additional SP interest that flows much more highly to SP holders, or something else, I don't know. But this is the key graph that no one focuses on.
This and onboarding high quality new users are everything:
https://plot.ly/~lukestokes/96/withdrawal-to-deposit-ratio-by-user-count-over-time/
HT @lukestokes
I'm not sure we are bound to trend down. With the new features coming out + new front ends, I wouldn't bet on things slowing down anytime soon.
Talking about buying STEEM is almost a taboo topic on Steemit. It’s weird, and I’m trying to figure it out.
I understood about half of what you said, and I'm fairly new to steemit, but even I have seen the potential in SP, so much so that this week I am in the process of investing $5000 in SP
2.500 done 2.500 on the way. Is see this as a long term investment, and because I can't panic sell my SP it feels better for my blood pressure :)
Great post
Yes, I like that too. I made some terrible move buying at the top and selling at the bottom. Now I just focus on getting as much SP as possible and move forward with what Steem Allows me to do.
Wow that sounds just like what I did, when I first started trading I made a nice profit, It must have been luck because after that I just started buying high selling low and lost most of my profits. I have now given up trading and are focused on long-term holding. BTC STEEM & EOS
very intiristing
As far as I can tell, once new investment/re-investment slows down and the selling off of steem or SMDs increases (whether it "trickles out" through "powering down" to steem or leaves as rewarded SMDs which are sold off) the price of steem will have no choice but to go down. This may take a while since so much of the Steemit network is locked up in SP but I don't see how it can be avoided.
Some may take issue with viewing Steemit like a business. Bitcoin for example doesn't require continued investment because it provides a wide variety of abilities which create a demand for BTCs. Steemit also has utility because it allows a means to reward content contributors, however the network is designed to promise everyone more than they put in. The only reason contributors can be rewarded is because there's a constant flow of investors who expect to be paid out later.
I think the discussion of whether or not Steemit qualifies as a "ponzi scheme" is irrelevant. Of course, you don't have to put money in to get paid if you are contributing content. Nevertheless some people do have to invest in order for the Steemit network to function, and if everyone putting money in is eventually expecting more out then there's no way for all of them to get paid.
For the record, I'm not a Bitcoin maximalist and I love seeing new projects in the crypto space. I have no skin in the game when it comes to Steemit. I've just seen a lot of people promoting it and I don't understand how it will end up working. I apologize if I've misrepresented Steemit because I'm getting things wrong on how the network actually functions. If that's the case please feel free to disagree or correct me.
Users and attention. Most people decide to powerup and therefore reduce the supply. Demand for SP is easy, upvote for getting more attention on your content. The blogging is only a distribution mechanism to bootstrap a real digital currency and economy.
thanks for your this great input
Thanks for writing that. I’ve been thinking since I got here that this blogging contest is just a foot-in-the-door technique for Steemit’s true ambitions (achieving bitcoin’s dream).
One thing that must be factored in is that you can only send that much money if the payout proposal is not objectionable enough for someone else to oppose and counter the vote. Steem payouts are intended as a consensus system, not just money to spend on any way you like.
very good point
I enjoyed the reads and like your thoughts. I am not an expert, but i noticed one thing. Never underestimate the dumbness of the people.
One example: Every month on fullmoon since January 2017 Byteball is paying "Bitcoin owners" for holding bitcoin. On 9th. of July every bitcoin owner gets currently more than 60$ in return just for owning 1 Bitcoin, so 6000$ for 100btc (2-3%) just for signing the ownership. That will repeat 1 month later. How does this work? The normal conclusion would be a massive drop in price after the giveaway. But it never happened. Sure its gambling. Is the stockmarket any different? I believe the stockmarket is the "casino" for guys who would not go into a "casino" :))).
Yeah - I've been pondering that one myself. Is this where the term "Fullmoon Party" comes from...heh.