I asked a question a few days ago about whether STEEM would hit $16 or $0.16 next. What wasn't a surprise is that everyone thought $16 would be hit before $0.16, mainly because most felt hitting $0.16 would be catastrophic and no one was ready to throw in the towel. So eventually as more improvements happen, like smart tokens and technology improvements like the main interface coming out of beta, most think the upward price momentum over the first 2 years will continue.

I decided to write an analysis for both sides of the argument. The reason for doing so is to point out the factors involved that both the bulls and bears should consider. I am not claiming to be a crypto price expert, especially not on steem. This post isn't meant to be technical argument for or against crypto, it is merely meant to bring up potential issues that people may not be aware of.

The Bull View

The main reason to own steem is the technology behind it. It is far superior to many other cryptocurrencies out there and is widely praised for its speed and the amount of transactions it can successfully handle. With the addition of smart tokens, there is tremendous excitement as these will be integrated and really enhance the utility of steem as a base platform.

Steemit is an application built on top of the steem infrastructure. The people here know what it is, so I won't waste time going over that, but I would like to say there are both positives and negatives as it relates to steemit. The positives are that it has a large installed base of users that is now 2 years old, and there is a good ecosystem of support mechanisms built already which enable a deeper social network experience. These range from curation boosting entities like @curie, community support groups like @familyprotection, to the bot aggregation site @steembottracker from @yabapmatt.

Another positive of steemit is that it is still new, and more development is happening all the time. The primary user login is actually still in beta, which means that there are still enhanced features being worked on all the time (have you checked out @sugarsteem yet from @theuxyeti?). Also, there are other developers that are building programs using the steem blockchain, and as these networks roll out they will add to future steem demand.

The Valuation Is $850 Million

The total market capitalization of steem at the moment is $853 million. When considering whether the price is going higher or lower it is always a good idea to consider how cheap or expensive the company is trading. A market cap should be viewed as the sum of money you would need to buy every share and own 100% of it. In this case it would cost you $853 million at these prices. Whether that is cheap or expensive would be relative to what you are going to measure it against.

Are We Entering The 4th Phase?

This is the entire 2 year history of steem trading. I have outlined the simplified trading pattern that we have witnessed so far. This is a consolidation phase (yellow block) followed by a sharp upward "rip higher" (red arrow). In each of the first 3 phases there was an easy pattern to spot. If this trend holds true in the future, then we are in the 4th phase that will be marked by the consolidation phase (in yellow), which when finished should be followed by the 4th "rip higher" spike to take the steem price to new highs. The whole pattern should look like stair steps that walk higher and higher. If you look at the magnitude of the 1st and 3rd spikes, you will see they both shot up many multiples from the base price. So if the price finishes consolidating in the 4th phase and rips higher again, it would be very possible to see the price shoot to the $16 valuation.

The Bear View

To make the bear view, I will point out some of the main factors that could cause the price to plunge back to where it was the summer of last year $0.16. The main reason why the valuation could drop that low is the overall cryptocurrency market itself. In other words steem might be one of the best blockchains out there, but if the cryptocurrency market implodes, then steem is most likely to go with it. This is a macroeconomic factor that is out of the control of the average investor. In other words, right now crypto's are "hot", this time next next year they may be "not". There are many factors that can affect this, but the bottom line is that everything is relative in the short term; and if bitcoin were to plunge below $1000, then you can be confident that steem will probably suffer some outflow too.

While I am not advocating this drop is likely to happen, what I will do is point out some of the things that could make it happen. The first possible way is that there could be an outright plunge in credit on a worldwide basis. This would lead to the money aggregates dropping and act as a deflating impulse to all asset classes. (think depression). This would be the opposite of what we have experienced over the last 30 years, as central bankers around the globe have not only had loose monetary policy, but they have downright printed money through quantitative easing. Sadly only they know when they are going to tighten the money spigot, but when they do all assets will suffer by varying degrees.

The second possible way is by a government crackdown on cryptocurrencies either by outright banning their use, or almost as bad, by them taking control over them and taxing them. In a world that is as controlled as the one we live in today, it is certainly a consideration. If crypto currencies continue their stellar path forward and take hold in every day life, it would mean an end to the petro-dollar as we know it. That would lead to the money creation/destruction being taken out of the hands of the central bankers of the world, and something tells me they aren't going to give away that power without a fight of some kind. Wars have been started to get this power, my guess is this is a bigger consideration than many bulls want to contemplate.

The third possible way is by steemit itself self-destructing, and taking steem down with it (at least for awhile). We all know the growing pains that all new platforms go through, and steemit is no exception. I don't need to list the issues that people have here, because frankly the readers of this post can't really do much about them anyways. But the large holders and management can, and steemit as a product is like any other business. Management must manage the business and provide a product/service that will keep its users coming back for more.

User Churn

One of the simplest ways to measure how good the management of a business is doing is to pay attention to what their user's "do" (as opposed to what they say). If customers continue to use the product/service in ever increasing numbers, then management must be doing something right. If the number of active users starts to decline, then management should take a look at the product/service and make some adjustments to improve the experience.

To have a successful business model you need to focus on two functions, getting new customers and keeping existing customers. All businesses will lose a certain part of their customer base over time as various factors impact people, moving, health, family needs, etc... The bottom line is all businesses suffer from what is called "Churn". The way to counteract this natural churn is to add new customers faster than the ones that leave due to churn. This can all be boiled down into a simple formula.

Churn Formula

Users at beginning of period + New additions - Users at the end of period = Lost Users or Churn

In February, we had 154k beg users + 73k new additions - 128k end users = 99k users lost. This means that for the month of February we lost the amount of new additions plus even took a hit to our overall active user base. February was not a good month.

I asked @paulag to run the number for the year to date so far. I had some suspicions of what the churn would show based on observations from dealing with so many people here in the last 5 months, so I wanted to find out. She put a post out (click here) and I will give you the numbers that I asked for in the chart (below).

Note: I defined churn a little more strict than she did. I only count people as "active users" if they commented or posted during the preceding 2 weeks. The reason for being a bit more strict is: one, the people that "sell their votes" and don't post or comment aren't what I would define as "active", and two I think two weeks is a period of time that a user would login and either comment or post if they were to be considered active. I realize this is a more strict, but some platforms like facebook count active as "daily" users.

By looking at the number above it is clear that steemit is going through a "rough patch". Since the end of January with 154K active users, to the end of April with 127k, we have lost a net 27,000 active users or 17.5%. And that is with the net addition of 261,000 new users. So put another way, we ended January with 154,000 active users, then had new signups for 261,000 more, but ended up losing 288,000 from the active column by the end of April.

Now granted some of these new accounts are bot accounts, shell accounts, etc... But the bottom line is the churn on steemit is ugly for now. And while the value of steem might not depend directly on the health of steemit, it is nonetheless something that the owners and management should pay attention to. Good management would figure out a way to improve on these metrics and reduce the churn.

This might not signal anything other than the product/service we call steemit is going through a rough patch as I said earlier. But it is a factor that everyone should consider, and I'm sure that a good management team will find ways to make the necessary adjustments. I hope so, as I really want the bulls to be right and see steem price go to not only $16 but way beyond.

Summation

I have tried to give an even presentation of both the bull and the bear case for the price of steem. I think it is impossible for anyone in my position (not connected to any insiders) to do anything more than consider both sides of the equation. The reason I think it is important to go through such an exercise is to 1) be financially aware (some have a large sum of money at risk) and 2) to learn how things work and explore the factors that influence the price. Being well informed is always a good idea and I hope you have found this presentation to be useful. Only time will tell which side was right, but hopefully by going through this exercise we all got our minds a little more in tune with the facts.

A special thanks to @paulag for getting me the numbers to make this post possible

Image source bull

Image source bear