STEEM ARBITRAGE OPPORTUNITY REPORT (ISSUE 2), AUGUST 15, 2016

Hi fellow Steemians!

I am a professional trader and arbitrageur and I arbitrage in different Bitcoin markets for a living. As I continue my research in the STEEM market, I would like to give you an update about the opportunities in this market today.

INTRODUCTION

Above is a spreadsheet showing the prices of STEEM/BTC and BTC/USD since July 20, 2016. Data are taken from the Poloniex exchange with today's price still changing. As we can see in the figure below, the price of STEEM has been steadily decreasing.

METHODOLOGY

As the time this report was written, the prices of the STEEM DOLLAR (SBD) were $0.8877/$0.8965 (BID/ASK), with the MID-price around $0.892. As you may know, on the Steemit platform, you can request to convert your SBD into STEEM using the 7-day hourly average price in the 7 days into the future. This report shows you the cumulative profit in USD you would have earned by making this conversion request at 1000SBD per day, and selling the converted STEEMs for USD, assuming the price of SBD is fixed at $0.892 each. Now let me explain what some columns mean on the spreadsheet, beside the obvious ones.

COLUMN E shows the trailing 7-day average STEEM/USD price. This would be the rate at which your SBD gets converted into STEEM. Here we have assumed that each closing price in COLUMN D indeed represents the day's average price, which should not be far away.

COLUMN F shows the percentage profit you would have made by selling the converted STEEM immediately in the market, if the price of each SBD was at $1 each. As you can see, due to the down trend of STEEM, you would have made a profit in just 1 out of 21 days.

COLUMN G shows the percentage profit you would have made by selling the converted STEEM immediately in the market, if the price of each SBD was at $0.892 each, the current price. As you can see, you would have made a profit in 10 out of 21 days, which is not bad considering the continuous down trend of STEEM.

Finally, COLUMN H shows the cumulative USD profit you would have made by requesting the conversion of 1000SBD per day, where each SBD is priced at $0.892. This is just the cumulative sum of COLUMN G multiplied by 10. The figure below shows a chart of the cumulative profit.

CONCLUSION

At today's discount of SBD at 10.8%, I believe the risk of this strategy is nicely compensated by its rewards. At any time, your total investment is never more than $7000 ($1000 per day times 7), but the strategy already gave you $230.14, or 3.28% return in 21 days with the hypothetical discount rate of 10.8%. Remember, this was the return when STEEM has lost 53.62% of its value in the same period. This would be much more profitable if STEEM had been rising, as you can see in the last data point of this graph! I hope this helps your trading or accumulation of more STEEMs. I will keep reporting to keep you updated.

Lastly, thanks for all the upvotes for my first report yesterday. This gave me a lot of motivation to continue following the market and share the opportunities out there. I will use the Steem Dollars I receive from my posts to set up an arbitrage fund and report how the fund performs in the futures. Thank you very much for your support!

Q & A

Q: Isn't the rate of STEEM/SBD reported to the blockchain, instead of STEEM/USD?
A: If you look at the protocol behind the STEEM blockchain, 1 SBD is meant to be pegged to 1 USD. To enforce this peg, 20 witnesses report hourly to the blockchain the rate of STEEM/USD. The hourly average of this rate over the future 7 days is used to convert SBD to STEEM for every such request. Therefore the rate reported by the witnesses is not STEEM/SBD, but STEEM/USD.

Q: Do I need to convert between STEEM and USD, or between SBD and USD?
A: USD was just used as the unit to show how much USD in STEEM you would gain using this strategy. In reality, you convert 1000 SBD each day, and after each 7-day period, you sell the amount of STEEM so that you get back 1000 SBD and possibly have some STEEMs left. That remaining STEEMs is your profit. We plot the profit in the last graph in USD because its value is more stable than STEEM.