Why now is the best moment to accumulate Hive
There are lots of discussions about inflation on the blockchain. Some think that the inflation is too high and in their eyes that's the reason why the price of hive didn't follow when most of other currencies saw their prices rise. There are voices out there that want to reduce the inflation and I tried to think this through. Are they right with their claim? I believe not.
As a nice side effect of this research, I came to the conclusion that now is the best moment to accumulate Hive...
What is inflation?
A lot of people are talking about inflation but there are actually two types of inflation.
The „real“ inflation
There is the inflation that you see in Venezuela for example where prices for goods are increasing daily. In this country the inflation is so high, that we need to call it hyperinflation. This type of inflation can be summed up as an increase in price levels and a decrease in purchasing power. The value of the currency decreases. To calculate what I call the real inflation, economists normally take a basket of goods and compare their price over a period of time. If the prices go up, the inflation goes up.
The monetary inflation
However this is not what people are talking about here on the blockchain. What they mean with inflation is actually the money supply or monetary inflation. It's important to know that both things are not equal but rather related to each other.
The monetary inflation, the money supply has a big impact on the real inflation. There are however also other factors influencing the real inflation. There is the speed with which a currency is exchanged. A faster speed brings higher real inflation. Finally there is also the quantity of goods in circulation that enters the picture. In a way it's a balance between supply and demand. If the supply increases too much in regard to the demand for the currency, then the price of the currency tends to go down and we get a loss of buying power. So the monetary inflation or the supply of a currency is only one parameter among several to influence the value of a currency.
It's not that easy to understand how everything works and even economists don't always agree on the mechanisms. I'm no economist and I don't claim to understand everything about it. However what I can deduct from all this is that reducing the money supply will not automatically bring a higher currency price!
The Dcity experiment
During the last weeks, I followed quite closely what was happening on dcity. First the price for the sim token decreased. As a response the Dcity government decided to increase the taxes drastically. By doing that, they were limiting the token supply. The taxes went up from around 10% to somewhere close to 80%. In spite of the drastic limitation of the supply, the token went on loosing value. Why?
Most of the users on dcity invest in the game because they want to have a return on their investment. By increasing the taxes, this return was strongly reduced. With these high taxes, dcity didn't provide a better return than other projects out there. People stopped buying cards and stopped building their citys, at least to a certain degree. This means that the reduction of the supply actually reduced also the demand and the token price lost more value.
What would happen if the supply was reduced on Hive?
I believe the outcome would be very similar to what happened on dcity. The reduced supply would also reduce the return on staking, voting, commenting and creating posts. This would reduce in return the demand for staking and in general the demand for hive. As a result, there would be no major influence on the price of hive but it could lead to a lot of people abandonning the platform!
If you reduce the supply of a coin and at the same time you reduce the demand for the coin, then there will be no positive effect on the price!
Let's look at the supply of Hive
People are always wondering why the inflation (= monetary supply) is so high on hive. Well actually it's not high at all. It doesn't mean that if you can get 15% APR on curation the the supply is growing by 15%. First of all we shouldn't forget that with our votes we allocate the supply of hive to the posts. However not everybody is voting. There are all the tokens that are not staked. Then there are a lot of votes that don't count (dust). I believe that maybe only 50% of all the hive supply is actually using it's voting potential. That means that the people voting get a bigger part of the pie than the people who don't. Which I find quite normal.
If you can get a return of 15% APR with curation, this doesn't mean that the Hive supply grows by 15%
So how much is the Hive supply growing?
I tried to research that a bit and I've found a very interesting article by @dalz where he shows the supply of Hive as it was planned in 2017 on the old blockchain.
| Year | Supply | Supply Increase | New Supply |
|---|---|---|---|
| 2016 | 250,000,000 | 9.50% | 23,750,000 |
| 2017 | 273,750,000 | 9.00% | 24,637,500 |
| 2018 | 298,387,500 | 8.50% | 25,362,938 |
| 2019 | 323,750,438 | 8.00% | 25,900,035 |
| 2020 | 349,650,473 | 7.50% | 26,223,785 |
| 2021 | 375,874,258 | 7.00% | 26,311,198 |
| 2022 | 402,185,456 | 6.50% | 26,142,055 |
| 2023 | 428,327,511 | 6.00% | 25,699,651 |
| 2024 | 454,027,161 | 5.50% | 24,971,494 |
| 2025 | 478,998,655 | 5.00% | 23,949,933 |
| 2026 | 502,948,588 | 4.50% | 22,632,686 |
| 2027 | 525,581,274 | 4.00% | 21,023,251 |
| 2028 | 546,604,525 | 3.50% | 19,131,158 |
| 2029 | 565,735,684 | 3.00% | 16,972,071 |
| 2030 | 582,707,754 | 2.50% | 14,567,694 |
| 2031 | 597,275,448 | 2.00% | 11,945,509 |
| 2032 | 609,220,957 | 1.50% | 9,138,314 |
| 2033 | 618,359,271 | 1.00% | 6,183,593 |
| 2034 | 624,542,864 | 1.00% | 6,245,429 |
| 2035 | 630,788,293 | 1.00% | 6,307,883 |
I won't go into the details about HBD that can have quite a big influence on the supply here.
In 2021, the supply of Hive tokens will increase by 7% only. From here the supply increase will gradually go down to 1% where it will stay after 2033.
Let's not forget that the US dollar supply increased by close to 30% this year !
What does this mean?
The Hive supply will grow slower and slower in the future. Every year the supply will grow by 0.5% less than the previous year. If the hive ecosystem grows by more than 7% this year, this will mean that the demand actually grows faster than the supply. If this is the case, this will have a positive impact also on the price.
The question really is: Will the demand for hive grow more or less than 7% in 2021?
With all the projects that are in the pipeline, I think it's really safe to say that the ecosystem will grow by more than 7%. But what happens if the number of users grows by 10% in 2021? What if the number grows by 50%? In these cases the effect on the price will be quite impressive I believe. For me this means, stake your hive and hold it. Now is the best time to grow your stake. It will never be that easy in the future!
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