Does Steem Rise and Fall with Bitcoin or Other Cryptos?
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The cryptocurrency Steem has established itself as one of the most popular altcoins in the market due to the success of Steemit, the world's first incentivized social network and content creation platform that pays its users in cryptocurrency for contributing to the platform.
Steem (STEEM) is the digital currency that is paid out to users who contribute or curate content. It can be traded on most major digital currency exchanges and can also be converted to the platform's two other (internal) digital currencies, Steem Dollars (SBD) and Steem Power (SP).
Correlation between Steem and Bitcoin
According to data compiled by Cointrading.Ninja, in the past twelve months, the correlation between Steem and bitcoin has stood at 0.05, which means that Steem and bitcoin have had effectively no correlation during that time period.
When two investments are uncorrelated, that provides an excellent opportunity for portfolio diversification as that means when one asset - say bitcoin - goes down, it does not mean that the other asset - in this case, Steem - will also go down. The expected return on the two assets, however, is not affected by being uncorrelated to each other. Hence, adding a holding in Steem to your bitcoin holdings acts as an excellent diversifier that could also lead to increased overall returns.
12-Month Correlations Data by Cointrading.Ninja
Correlations between Bitcoin and Leading Altcoins
According to Cointrading.Ninja data, leading altcoins Ether (ETH), Dash (DASH), Ripple (XRP), Monero (XMR), Litecoin (LTC), and NEM (XEM) have been marginally negatively correlated to the price of bitcoin in the past twelve months.
The slight negative correlation comes from the fact that bitcoin is seen as the reserve currency of the cryptocurrency markets, so when money moves into bitcoin it usually comes from other altcoins and vice versa.
Having said that, given how small the negative correlation is between these altcoins and bitcoin, there have been many instances - especially during large market movements - where bitcoin and the altcoin market have moved in tandem. In fact, in those cases, the altcoin market usually overshoots bitcoin, meaning that if bitcoin drops by ten percent, altcoins have usually dropped by 15 to 30 percent and vice versa.
Correlations between Steem and Leading Altcoins
From the above correlation table provided by Cointrading.Ninja, you can also see that Steem has a small positive correlation with other leading altcoins, which should come as no surprise as the altcoin market has the tendency to move in the same direction together. The correlations are not very high, however, as most of the leading cryptocurrencies have their own idiosyncratic features that drive their values.
Steem has the highest correlations with Nem and Monero at 0.41 and the lowest with Litecoin at 0.20, among the selected data set of altcoins.
Looking at the correlation table, you can see that Steem has one of the lowest correlations with other coins among the chosen altcoins. This again shows that Steem is an excellent diversifier for a digital currency portfolio, even one composed largely of altcoins.
How Has Steem Performed Compared to Its Peers?
Since its inception in early 2016, Steem has generated a return on investment for its earliest holders of over 600 percent, rallying from $0.64 to $8.57, its all-time high, on January 3, 2018, and trading at $3.96, at the time of writing.
Chart by WorldCoinIndex
When comparing the performance of Steem with bitcoin (BTC) and leading altcoins such as Litecoin (LTC), Dash (DASH), Ether (ETH), and Monero (XMR) over the course of the last twelve months, you can see that Steem outperformed bitcoin but underperformed most top altcoins.
From February 12, 2017, to February 11, 2018, bitcoin generated a return on investment of over 775 percent, while Steem holders saw their coins increase by 2,750 percent.
Litecoin generated over 4,100 percent return, Dash generated over 3,500 percent return, Ether generated over 7,500 percent return and Monero generated over 1,900 percent return over the course of the last twelve months.
Conclusion
This analysis shows that the digital currency Steem acts as an excellent diversifier for a digital asset portfolio as it has no price correlation with bitcoin and relatively small correlations with other leading altcoins. Also, Steem has outperformed bitcoin substantially over the course of the past twelve months, which means it can also add portfolio returns, especially to a portfolio composed largely of bitcoin holdings.
Having said that, most of its leading peers have outperformed Steem in the last twelve months, which shows that there are other digital currencies out there that have higher profit potential.
Given the role that Steem plays on the Steemit platform, the value of Steem is closely tied to the success or failure of Steemit as the first incentivized social network that pays users in cryptocurrency for contributing. If Steemit manages to continue to grow its 500,000+ user base and establishes itself as the go-to get-paid-to-post content publication platform, then the value of Steem has the potential to be worth a multiple of what it is worth now. If Steemit does not succeed, however, then Steem will likely end up losing value from its current price over the long-term.
Steem is, therefore, definitely one of the riskier altcoins as its value is so closely linked to the success of one platform while other altcoins such as Litecoin and Dash, for example, provide value-adding services to a much broader market. This also explains why Steem has a much smaller market capitalization than the peers mentioned in this analysts.
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Good analysis, but your use of the term "riskier" is misplaced. Does depending on Steemit (and its sister sites) make Steem risky when hundreds of thousands of people are using the sites? To the contrary, that provides a robust use case that the other cryptocurrencies you've mentioned are lacking. It's something that the Dashes and Litecoins do not have. Not saying they're not useful in their own ways, but having hundreds of thousands of people using your currency on a community site like this (and now processing nearly half of all transactions in the cryptocurrency world) adds not an element of risk, but resilience with one of crypto's strongest use cases to date.
Agreed, steem is one of the few coins that exists with real utility to it. The others are mostly just speculative trading vehicles currently.
Great explanation. I've always tried to avoid comparing risk, but this is making it clear. Thanks.
This is also my argument about Steemit being one of the best cryptocurrencies in the scene. If it solves the distribution problem then it becomes unstoppable
Yeah and Steem Power makes you to HODL steems for longer even if you don't want it.
That's the thing no other crypto has. The many ppl got steem power the stronger steem gets.
I think the price floor that the users on here agree on discounting the Upbit premium is still much lower than what we've seen recently. Your point stands in that even if other altcoins get completely vaporized in coming months when speculators dump, steem will have price discovery by the native userbase even if it temporarily overshoots a correction. Steem is actually one of the only coins to have pumped before the 2017 market frenzy, so it shows that it can infact have price movements independent of other coins.
Steem is not great as a speculative instrument, it's an investment in a transparent social network. No wonder it is poorly correlated with other altcoins, which experience much more volatility.
I think .5 is a positive correlation. 0 is totally neutral.
If only i would have been just 3 months early on steemit then i would have made a lot of profit for sure. But anyways i am glad that i atleast found out about it now.
During Early FEB when the bitcoin was falling even the price of steem also fell to almost 2.88 dollars from as high as 6 dollars. I was having a close watch on both the currencies. But this is also true at the same time that the price of steem stayed above its previous relation with bitcoin. Not just steem but every other coin got destroyed.
I feel that the real rush is yet to come as Steemit and other platforms like Dtube and Dmania are yet to his mainstream.
in future steem will act as unaffected whether the price of btc falling or rising
I hope so as well. It's a great entry point for people who want to get into using cryptos, so hopefully it will be independent from them at a certain point.
thanks for ur info sir
best post..thanks for your information
same thing ive been wondering if a proportional drop in bitcoin shares or stock as equal effects on price of steem .i figure more and likely because its the base cryto or leading crpto.
Great to see that Steem is relatively unaffected by BTC price swings. I think with all the new features rolling out it will keep going this way in the future. I would love to see another 2750% gain in 2018
what's the best way to purchase steem dollar (SBD) from fiat currency like USD? currently we have to purchase BTC, LTC, or other and exchange for SBD from major exchanges like Coinbase. Many errors could happen specially for new users