Hi Everyone,
In this post, I would like to discuss the price of Hive. The price of Hive often seems to have a mind of its own. It seems like it could unexpectedly climb or crash while appearing unrelated or connected to events occurring on the blockchain. This observation is in part true. Some people who buy Hive do so just to sell it a very short time later after the price has jumped; thus picking up a quick profit (i.e. pump and dump). However, other people buy Hive because they believe it is a good long-term investment. The events on the blockchain will matter to them. It can be difficult to link developments on Hive to new investments. Some investors buy early in anticipation of development. Some investors buy later once they have observed growth. The timing of these investments, which lead to price increases, could be completely out of sync with development and activity on the blockchain. In this post, I attempt to make a little more sense of the way the price of Hive moves.
Since Hive was created from the hardfork of Steem in March 2020, a lot has happened. Some of these changes have been technical behind the scenes changes and upgrades that directly benefit developers and witnesses and indirectly benefit users. For example, Hardfork 24. Other changes affect users directly such as new or improved decentralised applications (DApps), tribes, communities, and tools. See below.
Improved DApps include:
New DApps include:
Many more are currently being developed.
Many might assume that because of the amount of work and the number of improvements that have taken place on Hive since the launch, the price of Hive would naturally increase. Price does not work that way. Understanding price movements can be both simple and complex. The price movements of Hive may appear strange but they are subject to the same economic principles as anything else traded in the market. The price of Hive changes based on demand and supply. Figure 1 contains a simple demand and supply diagram.
Price and quantity are determined by the interaction of demand and supply; that is the simple part to understand. The complex part is understanding the determinants of demand and supply. We should be most interested in the determinants of:
Demand changes when the ability and willingness to buy changes. For example, when real income and wealth increases, the ability to buy increases. This will lead to an increase in aggregate demand. If willingness to buy does not fall, demand will increase (demand moves to the right). Demand will increase the most when there is an increase in both the ability and willingness to buy.
Before we can look at Hive, we need to consider demand for cryptocurrency as a whole. This typically begins with Bitcoin, which is an entry point for many people, as it is the most well-known and easiest cryptocurrency to acquire. It appears people and institutions mostly buy Bitcoin as a form of investment or for market speculation. Both these reasons depend on Bitcoin being worth more in the future (i.e. medium to long run for investors and short-run for speculators). Increases in demand puts pressure on price, if price increases, which is normally the case for Bitcoin, more people and institutions will buy it (i.e. possibility of an upward sloping demand curve, discussed later in post), which will add more pressure on the price to increase. At this point, speculators and some investors will sell their Bitcoin to make a profit (i.e. reason for buying in the first place). Some will sell their Bitcoin for a fiat currency or a stable coin. Others will sell to buy an altcoin (i.e. most cryptocurrencies that are not Bitcoin).
Investors or speculators that sold Bitcoin for an altcoin could be interested in buying Hive. Investors will be focusing on the value Hive has to offer and its ability to grow and gain value over time. Speculators will be focusing on the potential for a quick jump in price. They will care very little for what Hive does or is, as they will not be staking (i.e. reducing liquidity to gain a higher return) their tokens. Instead, they will sell when they believe they can profit the most or when another opportunity comes along to earn quick profits.
Elasticity of demand depends on a number of factors. Substitute and complementary products often play a key role in determining elasticity of demand. Less substitute and more complementary products increases elasticity of demand. A lack of substitutes, usually results in minor changes in quantity demanded when price changes. This is because there are few alternatives to switch to if the price increases and few alternatives to switch from if the price decreases. Many or highly in demand complementary products also results in only small changes in quantity demanded when price changes. This is because the demand for the product is dependent on the demand for the complementary product.
Hive is an altcoin. There are many altcoins but very few of these altcoins are close substitutes to Hive in terms of what they are offering. Therefore, Hive should have reasonably inelastic demand for investors. In regards to speculators, Hive could be treated as just another altcoin; therefore, could have elastic demand. It is also important to note that speculators move very quickly from buyers to sellers. The focus is on making a quick profit, which is linked to quick price movements, which is dependent on supply as much as demand. Therefore, the elasticity of demand for speculators is likely to be a function of supply and/or elasticity of supply. As the supply curve becomes more inelastic, the speculators demand curve is also likely to become more inelastic.
Hive has a few complementary tokens such as the Hive Engine tokens. Hive does not have many external complementary coins, blockchains or services that will ensure quantity demanded is less dependent on its own price. Lack of interoperability with other blockchains will increase the elasticity of demand of Hive for investors. In regards to speculators, complementary coins or blockchains would have little impact on their elasticity of demand for Hive. Availability of Hive on exchanges could increase the inelasticity of demand, as speculators would have more buying and selling options.
The market demand curve obtains its shape from the sum of individual demand curves. If all individual demand curves have a similar gradient, the market demand curve will resemble a straight line. If the individual demand curves are of different gradients, the market demand curve will resemble a bending curve. The extent and placement of the bend will depend on how many individual curves are elastic and how many are inelastic.
Demand for Hive can be expected to come mostly from investors and speculators. Investors are likely to have inelastic demand based on limited competition and speculators are likely to have varying elasticity of demand, which would be strongly dependent on supply and elasticity of supply (to be discussed later in the post). The shape of the demand curve will depend on the extent of demand from investors and the extent of demand from speculators.
The demand curve could also be upward sloping. At lower prices, when the price begins to increase, people (speculators in particular) may expect prices to increase. Therefore, have a higher willingness to pay as price starts to climb; this is likely to be true during the early stages of a Bull Run. These expectations begin to change as prices climb higher, as people expect prices to begin to decrease again. The demand curve would revert to being downward sloping. The point of infliction depends on when these sentiments change. The market demand could either be downward sloping but kinked or also backward bending. It depends on the extent that individual demand curves are temporarily upward sloping and the elasticity of individual demand curves that remain downward sloping.
Supply relates to the quantity a supplier is willing to sell at various prices. Supply is typically related to the number of products produced. Producers produce what they intend to sell. With cryptocurrency, it is slightly different. The stock of cryptocurrency (I use the word ‘stock’ to differentiate between liquid cryptocurrency traded on exchanges and total supply of the coin) increases according to a fixed schedule. Therefore, the increases in the stock of the coin does not directly affect the price. However, the increase in supply of a coin available for sale does directly affect the price. As supply increases, there is greater downward pressure on price.
The supply curve moves based on people’s expectations around future price movements. If more people believe the price will increase, the supply curve shifts to the left. This is because less people are willing to sell if the price is going to increase soon. If more people believe the price will decrease, the supply curve shifts to the right. This is because more people are willing to sell if the price is going to decrease soon.
Many of the people that supply a cryptocurrency are the same people that bought the cryptocurrency. Let us continue to assume that the main buyers of Hive are investors and speculators. Investors would hold onto Hive for some time. They are likely to stake it (i.e. Hive Power) and use it to generate a return. In the medium or long run, they will sell their Hive investment. There are several reasons an investor might sell. The price of Hive may have greatly appreciated and the investor believes it is a good time to realise their profits. For example, the investor believes the bull market is ending. The investor may have found another investment, which offers a higher return. The investor may have lost confidence in Hive and fears future price drops or is no longer happy with the return.
Hive has another group of people who own Hive. These people earned Hive from posting or curating content or as Hive witnesses. This group of people may choose to hold onto their Hive until the price reaches a certain price or they may need to sell immediately. It is very unlikely the supply of Hive from this group of people will have any significant impact on the price.
Hive was created from a hardfork of Steem. It may have felt like a clean break from Steem but Hive still carries some of the legacy of problems from Steem. Throughout the bear market, Steemit greatly mismanaged their operations and their stake. Development was minimal and they were periodically selling large quantities of their stake. This consist selling pushed the price of Steem significantly lower than it would have been otherwise. By the time Steem was hardforked to create Hive, the price of Steem had fallen by approximately 98% from its all-time high of over US$8.00. This set Hive up for a best-case scenario of a starting price in the region of Steem’s price (approximately US$0.20). There was uncertainty around how many of the new Hive stakeholders would want to remain invested in Hive or if they would rather sell and move into another cryptocurrency.
Elasticity of supply depends on a number of factors. Ability to increase and decrease supply and the costs of increasing and decreasing supply often play a key role in determining elasticity. Cryptocurrency does not rely on production. It relies on how much people have accumulated and how easily they are able to sell it. People can hold Hive as a liquid asset in their wallets or on exchanges, or they can stake it as Hive Power. Staking reduces liquidity, as it takes at least 13 weeks to completely power down the stake. The amount of Hive held as Hive Power greatly influences the elasticity of supply. As more Hive is staked, the elasticity of supply falls (i.e. inelasticity increases).
Elasticity of supply is also influenced by expectations. If people expect the price of Hive to increase, they will wait before selling. If people expect the price of Hive to decrease, they will sell at the current price. The elasticity of supply for Hive will be more inelastic if people expect the price of Hive to increase.
The market supply curve consists of the sum of individual supply curves. If people have similar perceptions regarding the future price of Hive, the shape of the supply curve is likely to be a straight upward slopping line. If people have very different perceptions regarding the future price of Hive, the supply curve will have a significantly more defined curve. The supply curve is also likely to be significantly flatter at lower prices. Most people are unwilling to sell below a particular price, as this would result in significant loss for them. A resistance band would form at this level. This would prevent the price from decreasing even if demand decreases. This could be considered as a temporary minimum price. However, if demand increases, people will sell once their minimum price has been reached. This will prevent price increasing when demand increases. Thus, forming a temporary maximum price.
It is also possible that the supply curve is constantly changing shape. Elastic and inelastic sections of the curve could move up and down as demand increases and decreases. For example, demand may increase along an inelastic section of the supply curve. This would cause price to increase significantly. If demand remains stable, it is possible the more elastic section of the supply curve shifts upwards. This upward shift would prevent the price from falling back significantly when demand decreases.
The desirability of movements, gradients and shapes of demand and supply curves depends on whose perspective we are taking. From the perspective of a speculator, inelastic demand (or even upward sloping), inelastic supply and quick shifts in demand and supply is desirable. Price will fluctuate quickly enabling many opportunities to buy low and sell high within a short period. From the perspective of most investors, inelastic demand and supply with both elastic and inelastic sections (see previous section) is desirable. Inelastic demand is desirable, as other investors will not quickly switch to other coins when price changes. Supply with both elastic and inelastic sections is desirable, as the inelastic sections enable price to rise when demand is higher and the elastic sections will protect price from falling when demand is lower. Small movements in demand is desirable, as it enables price to increase steadily with less chances of wild price fluctuations. Small positive movements in demand may enable movements of the elastic sections of the supply curve, which could prevent the price dropping when demand decreases.
Staking is an important part of both Hive and Steem blockchains. When coins are staked, they provide an opportunity to earn a higher return but at the cost of liquidity. Investors are likely to stake their coins, as liquidity is less important, as they do not plan to sell in the short-run. Speculators are less likely to stake their coins, as they require liquidity to sell when they believe market conditions are favourable. Steem and Hive have different durations for unstaking (powering down). Steem requires 4 weeks to unstake fully and Hive requires 13 weeks to unstake fully.
Which duration is better? This will depend on the attitude of investors and if cryptocurrency is in a bull or bear market. Investors may like the security a long unstaking period offers (i.e. if account is hacked, a low percentage of stake is at risk of being stolen). Investors may like it that other stakeholders cannot quickly respond to price hikes, which would cause the price to decrease sharply. However, if the unstaking period is too long, more people may choose not to stake at all; thus increasing elasticity of supply, which could hinder the growth in price. During a Bull Run, staking could become unpopular if the unstaking period is too long. People may fear missing the opportunity to sell when price increases. During a bear market, long unstaking periods should be less of a problem as most investors are less likely to sell; therefore, do not require liquidity.
The price of Hive is eerily following the same pattern as Steem did in 2016 and 2017. Figure 2 contains the historic prices of Hive from launch in March 2020 to February 2021.
Source: Coingecko
Figure 3 contains the historic prices of Steem from launch in April 2016 to February 2021.
Source: Coingecko
Note: The section in the red square displays a very similar price movement to Hive.
The first year price movements of Hive is following an almost identical pattern to the price movements of Steem. Initially, price fell a little after launch. Shortly afterwards, price increased dramatically followed shortly by an equally dramatic decrease, which sent price back to approximately where it was before the increase. Then, price remained flat for more than six months. Even when the prices of other altcoins began to increase neither the price of Steem nor the price of Hive moved by much. Then prices rapidly increased. For Steem, the price jumped, then fell slightly and then jumped by an even larger amount before eventually falling and wiping out about half the increase. Hive appears to have had the initial jump in price followed by a rapid drop in price.
If the price of Hive continues to follow the price of Steem, it will experience a significant increase in price sometime in the next two weeks. This increase in price could be approximately double the previous increase. If Hive follows the same pattern, it could reach US$0.50 to US$60 in the next two weeks. The price could then fall to about US$0.30 before experiencing a large spike before the end of the Bull Run, which could propel the price to as high as US$2.00. The increases in the price of Hive appears to be about a quarter of the magnitude of the increases in the price of Steem in 2016/2017.
Why would the price of Hive follow the same pattern as the price of Steem? It most likely is not following the same pattern, it only appears that way. Hive was launched almost exactly four years after Steem. The cryptocurrency market cycle appears to be approximately 4 years. This cycle appears to revolve around the approximately 4-year Bitcoin halving event (i.e. halving rewards per block mined). The halving event, which reduces supply and increases elasticity of supply, tends to lead to a very bullish market for Bitcoin. A Bitcoin Bull Run is likely to lead to a Bull Run for many of the altcoins because of the increased flow of money into cryptocurrency as well as the publicity the Bitcoin Bull Run generates. The increase in the price of Hive at around the same duration into its life, as Steem is expected and this is simply because of the timing of the launches.
Both Steem and Hive had an initial spike in price shortly after launch. Such a spike is common, many newly launched coins experience a similar spike (e.g. Litecoin, Cardano, Tron, EOS, Ethereum, and Ripple). This spike could be due to interest because the coin is new or more likely because the coin has just become listed on several new exchanges, which creates a spike in demand. Supply often lags or is inelastic. When demand decreases and supply catches up (i.e. those who just bought want to sell to make a quick profit), the price rapidly decreases.
Justin Sun's acquisition of Steemit was the main reason Hive was created. His ideology was and is incompatible with the Steem/Hive community. Instead of bending to the community, he centralised the blockchain with witnesses he bought. The creation of Hive did not entirely end the threat posed by Justin Sun. Hive is a competitor to Steem. A competitor that is outperforming Steem in many areas such as development, engagement, and overall activity.
Source: PenguinPablo
Hive temporarily had a higher price than Steem. However, since the start of the Bull Run, Steem has managed to maintain a higher price. Justin Sun has shown on several occasions his dislike for Hive and the Hive community. The biggest display of this was when he removed millions of Steem from the accounts of many prominent members of the Hive community and development teams. I believe Justin Sun is likely to attempt to sabotage the Hive blockchain. It is possible he would do this by restricting the increase in the price of Hive during the current Bull Run. He could attempt to do this by buying and selling large quantities of Hive. The significantly higher volumes (i.e. 24-hour trading volume of about four times the Hive market cap) without the typical very large spike in price could be evidence of manipulation. Buying would pump the price up and selling would prevent it from climbing too high and cause it to crash back down quickly when his selling continued after his buying. If he repeats this exercise several times, he might encourage other Hive holders to sell as well while he continues dumping Hive. This could cause the price of Hive to fall below the initial price when Justin started to buy. He may have several other tricks he might pull to prevent Hive from getting ahead of Steem. It is difficult to say how successful he will be.
Note: Simulation of the price of Hive is based on Steem. However, there is a high chance the price will deviate greatly from this graph.
If Hive is able to draw and retain enough users, both content creators and the audience for these content creators, the great work and development on Hive should eventually reap rewards in terms of a higher and more stable price. It is difficult to predict when this will occur. The current Bull Run has a good chance of creating a new Hive all-time high (i.e. price higher than US$0.97). However, there is a good chance that the higher price will be short lived, as the next bear market will pull it down. It is difficult to predict how far it will fall. If Hive is able to achieve a high user retention rate, the decline might not be severe. Hive stakeholders do not need to worry about periodic selling, which added to the decline in price of Steem in the previous bear market. For example, the price might only decrease by 80% instead of 98%.
The theoretical 2025 Bull Run is likely to consist of more investors than previous bull runs (I am assuming some cryptocurrencies are being widely used). This is likely to lead to more selective buying of coins than previous bull runs, which have been dominated by speculators. If Hive has a very large user base, it will have a strong chance of encouraging the more selective investors and therefore could become one of the better performing coins in terms of price in that Bull Run. There is also a good chance that coins such as Hive will eventually break away from the Bitcoin market cycle. It is difficult to know if or when this will occur. If it does, Hive’s price movements should become more stable.
It is impossible to guess the future prices of Hive with any consistent accuracy. Price spikes and plunges could occur at any time. The low market cap also adds to price volatility. It would not require a huge increase in demand to cause the price to increase significantly. Likewise, it would not require a huge decrease in demand to cause the price to fall back down again. The elasticity of supply also plays a role; inelastic supply would exaggerate these spikes and plunges.
The price of Hive is still linked very closely to general trends in cryptocurrency markets. It will be a difficult challenge to break from these trends. To do so, Hive will need to standout from other cryptocurrencies as well as appeal to people currently not heavily invested in cryptocurrency. Hive has a few advantages. There is limited established competition in regards to decentralised social media on the blockchain. Censorship on centralised social media is becoming a problem. Hive is a great solution to that problem. It just needs to attract a sufficient number of people to become a credible alternative to existing social media giants.
If you want to read any of my other posts, you can click on the links below. These links will lead you to posts containing my collection of works. These 'Collection of Works' posts have been updated to contain links to the Hive versions of my posts.
The course contains over 10 hours of video, over 60 downloadable resources, over 40 multiple-choice questions, 2 sample case studies, 1 practice CBA, life time access and a certificate on completion. The course is priced at the Tier 1 price of £20. I believe it is frequently available at half-price.
