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).
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
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.
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.
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.
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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