Debt Amplifies Dips
Wow, it's been a brutal month.
CoinGecko told me that the HIVE price was $0.1232 and the market cap was $61,070,117 a few seconds ago.
Ausbit bank tracks the HBD token. Ausbit said that the HBD Marketcap was $11,454,710.598 and the HIVE Marketcap was $100,200,610.
I believe that Ausbit is showing an average over the last three days.
I wonder about the huge discrepency between the CoinGecko and Ausbit marketcap.
HIVE is inflationary. Our author and curation rewards come from inflation built into the currency. So it is likely that CoinGecko has data that does not accurately reflect supply.
The HBD / HIVE Ratio
Ausbit reports that the HBD Marcap has risen to 11.432% of the HIVE marcap. If this rises to 30%; we could see something called a haircut.
BTC is still trading at an astronomical $109,551. A major disruption in bitcoin could easily cause a halving in the price of HIVE.
This haircut is closer than we think.
HBD is a Derivative
FWIW: The HBD is a derivative. The value of HBD is derived from the value HIVE. HIVE has a program that converts HBD to HIVE. If someone put a thousand HBD through the conversion at $0.123, the conversion program would destroy the thousand HBD and generate 8,130 HIVE.
Since HIVE is low, the smart move is to convert one's HBD holdings into HIVE. If smart users converted one million HBD to HIVE we would see 8,130,000 million HIVE dumped on the market.
The problem with derivatives is that investors dumping their derivatives on a weak market can completely destabilize the market.
I Like HBD but Dislike the High Interest on HBD
I like the basic structure of HBD. HBD creates a fun stable coin in the network.
I was angry when the witnesses started paying a stupid high interest on HBD. I was also angry when core investors started clamoring for a high HBD marcap.
What were they thinking?
Debt Amplifies Dips
Some users have noticed that HBD has similarities to debt.
Anyway, I decided to write a post titled "debt amplifies dips" to point out that it is likely that the stupid high interest on HBD made the current dip deeper than it should have been.
I've been angry at the HIVE witnesses for the high interest on HBD. I was angry because the high ratio of HBD to HIVE amplifies the dips and makes the platform more volatile.
I Probably Should Apologize for My Midnight Rant
I probably should apologize for my midnight rant. I've been angry at the people who supported the high interest on HBD for several years.
The cost of the stupid interest on HBD is that the dips in the price of HIVE are deeper than they should be.
Stupid high debt also drives away smart investors.
The stupid high interest on HBD hurt the platform. I had been waiting for a dip to say this.
I recommend that users follow ausbit report on hbd carefully.
If you are holding HBD, the smart move is to pull it from savings and convert it to hive. this dumps hive on a weak market.
This type of financial structure can lead to something called "a death spiral."
The Picture
As for the picture. I've been generating images for the inktober game on Night Cafe. I generated an image of the market teaching an investor about the dangers of debt. The bottom picture is for the "vacant" prompt.
I prefer buying hive on the internal market with HBD vs. converting it. I suppose if you are doing large amounts conversion might make more sense.
The HIVE/HBD conversion works with the market to keep the HBD dollar peg.
So, if the price of HIVE was $0.95 and you traded it on the market, you would only get $0.95. In this case, it is better to use the conversion. You have to wait three days, but you will get a full dollar.
When I see the the price of HBD is above a dollar, I will convert HIVE back to HBD.
There are numerous bots, like the HBD stabilization fund, that play HBD/HIVE arbitrage.
I figure that I will support the peg. When I see the price is below 97% I use the conversion process. If it is above, I use the market. If HBD was over $1.03, then I convert any free HIVE in my account back to HBD.
I like this formula. The system successfully maintains the peg without paying interest on HBD.
!WINE
I guess it's partially speculation on my part. I try to keep my Hive/HBD holdings at about 50/50. Up until recently, I had a greater value in hive and was always putting my HBD in savings. Now, with the recent drop in the price in hive, that has flip-flopped so I'm always buying hive with my liquid HBD and plan to keep doing so until I'm back to 50/50. Also, my understanding of the conversion process is that you get some kind of average based on the price over the three day conversion period so it isn't like you are getting the value things are at the moment you decide to convert. I'm doing very small amounts daily so I suspect it comes out about the same on average.
The conversion is not a guaranteed profit as the HBD stabilization fund also reacts to dips in the price. I play the conversion game simply because it supports the HBD peg.
BTW: I like your cost averaging technique. People who are doing what you are doing actually support HIVE as you are a buyer when the price of HIVE is weak. I would be doing the same, except I think the excessive interest hurts the platform.
I've been putting all of my excess HIVE into HIVE-Engine where it simply disappears.
!LOLZ
lolztoken.com
Elongate could be really drawn out.
Credit: mrhuman88
@darth-azrael, I sent you an $LOLZ on behalf of yintercept
(1/10)
Lol, I also put some into Hive-Engine, largely via delegations but yeah, it seems to act more as some sort of voluntary Hive taxation system.
If we cut the HBD interest rate, a few speculators may dump their holdings and cause a "crash," but once that is over, we can find a new equilibrium.
If we maintain the status quo, the debt builds, and I agree that is not healthy in the long term.
Which witnesses can we persuade to start reducing the rate, say 1% at a time ove the next few months, to avoid a shock? It makes sense to keep HBD returns above the US inflation rate, so 10% might still be reasonable IMHO.
This is why they call it a death spiral.
I just looked at Ausbit Bank. It reports that the HIVE Marcap dropped under $100K and that the HBD/HIVE debt ratio is 11.487%. I suspect it will get worse.
If we cut the interest rate with HIVE trading at $0.123; we could expect a large number of investors to dump their HBD. It will probably be in a slow building cascade, we might see one million dump. This would push down the price of HIVE. Then we might see another million dump, which further pushes down HIVE.
It is conceivable that we would see investors dump 5 to 8 million HBD. Some would be sold on the exchange. Most would be converted to HIVE.
5 million HIVE converted at $0.123 would be 40 million HIVE.
The market cannot absorb 40 million HIVE.
This crisis that we are facing was foreseeable when the witnesses voted for the 20% interest rate.
The merchants of debt won this debate simply by putting everyone who disagreed down.
So, not only did they hurt the platform from a financial perspective, they turned what could have been an open market of ideas into a toxic place.
You Are Right
You are right. HIVE's best hope is that miracle occurs and there is a break out. HIVE could then start gradually reducing the debt.
Sadly, there are few people in the universe smart enough to carry off such a plan and they would receive resistance from whales.
!WINE
I suppose I could start by withdrawing my votes from all witnesses over 15%. I may be a small orca, but it's more than nothing.
In theory, the HBD interest rate is set by our witness votes.
So, if hive users voted for witnesses supporting low interest rates, then hive would lower the rate.
Unfortunately, our votes are weighted by HIVE POWER; so, in reality, the rate is set by whales.
The witnesses are in a terrible situation where they have to enter a high interest rate or perish.
For the last several years, I've been voting for active witnesses who support a low interest rate.
!PIZZA
Why don't you vote per @antisocialist's recommendation for those whales that aren't selling Hive? That is directly impacting the price of Hive, not interest on HBD. You appear to me to be dancing around the actual problem.
Witnesses have expenses. Some might even have employees.
For that matter, a primary reason that blockchains issue stable coins is so that the people hosting the chain can pay their fixed costs.
So, I would not witnesses for selling HIVE.
The interest on HBD costs way more the cost of hosting, and does not provide any real value to the chain.
!WINE
I agree that witnesses - and other devs - have costs they need to cover. I'm not saying that selling is evil per se. However, the capture of inflation from the pool by whales exceeds 90%, and my understanding* is that most of that is put up for sale. Most of that selling isn't to cover fixed costs of running servers, but simply to provide cash income, ROI on capital. The interest on HBD isn't more than that, or even half of that.
The interest on HBD is not a significant contributor to the selling of Hive, and is not the reason Hive price has crashed. It is the whales selling their 'dividends' and recipients of DHF funding dumping Hive on the market to get fiat. That is the reason that Hive has continually lost position - and if you examine the reduction in Hive's market position the rate of it's decline has been steady and continuous, not impacted significantly when HBD interest was set at 20%.
The HBD interest rate is a bugbear that has no significant impact on Hive price. Whales and DHF recipients selling is the cause of Hive price declining. The monthly interest on my HBD savings is <$25. I do not sell that interest. It does not impact the price of Hive, and shockingly I am one of the top 1500 accounts. Most people get less than me for interest on HBD savings. Look at Hive sales on exchanges, and the total HBD interest distributed monthly is a pittance in comparison to the volume of Hive sold.
It may grate on your nerves, but it isn't a significant factor in Hive price.
*Edit: the bare majority of stake month to month maintained by the ~36 whales is consistently >50%, and <51%. That means that whales sell every Hive they get beyond what is necessary to maintain their bare majority of stake and maintain total control of governance by maintaining the majority necessary to elect the witnesses that run code and therefore govern Hive.
You're aware of why the whales would resist. It is their extraction of value from Hive by selling that is what matters to them, and that has caused the value of Hive to decline to approach the haircut.
That is the problem.
$PIZZA slices delivered:
@yintercept(1/15) tipped @jacobtothe
Come get MOONed!
I don't agree that 15%, or even 20%, is high interest. I think that barely covers inflation. Lesser interest would be losing money when inflation is running a couple points per month.
It isn't HBD interest that has caused Hive to underperform the market, which it has since before Hive existed. It is the whales' programmatic selling that drives the price of Hive down. That is your huckleberry, not meeting inflation with HBD interest.
Thanks!