Crypto Analysis | SPS Inflation Problem and TA
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SPS has been holding at critical support for some days
But is now with great probability heading for ~5 cents. This is bad news for everyone holding SPS as it seems that the price just keeps falling. The reason for this, however, is very clear: inflation. Currently there is about 400k SPS distributed every day. This is a lot and means that there is about 12 million SPS distributed every month and 144 million every year! Of course this is only a rough estimate as inflation is dynamic and also does not include the burned SPS from e.g. the validator license sale. However, we can say that the inflation rate for 1 year is roughly 16%-17%.
In my opinion the team/community has to reduce this inflation to at least less than 10% if we want any sustainable price action. The problem is that the current burn mechanisms only really work when price of SPS goes higher. For example, the validator license sale gets more attractive the higher the SPS price goes (and thereby burns a lot of SPS); also the SPS>DEC burn mechanism only works when the peg of DEC is being held or is higher. In other words the way things are structured is that we need a "B" event (higher SPS/DEC price) for the "A" burn mechanisms to get started. Obviously this is tricky as generally the world works in this way: "A" > "B".
I nevertheless have confidence in the team to figure this out (although I wonder if the community can get things on the right track as the current proposals, e.g., pricing Riftwatcher gems and validator licenses in DEC seems to not get approval which, however, would help the economy) and the team has always stated that Splinterlands is basically the first WEB3 game to try to figure this out. There will obviously be road blocks along the way. Persistence is key here...
TA
This chart is now several months old, but bears repeating. It shows that there was indeed a trend reversal for SPS which I still think we are on track:
You can see that for the first time in SPS price history we didn't have a new lower low and instead established an upward channel.
On the daily chart there was a support at around 6 cents which was broken in the last few days. While this was one layer of critical support, there is another one at around 5 cents which has to hold if we are to remain in the green channel below:
You can see that this is coming from the wick in August which went down to about 0.046 cents; the new support thereby is at ~0.049 cents and is increasing at a low rate. Since these are very low levels for price I think there is a very good chance for it to hold and that we will remain in this channel for the foreseeable future even with the inflation being so high.
But this channel is not very exciting: even with Land, Tower Defense, and the GLX airdrop I would expect the support being only at around 7 cents when the GLX airdrop ends! This would "only" be a price increase of about 30% at the low end of this range. At the high end I see 22 cents for the end of October 2023. This would be a 300%+ increase, although the average and more realistic target would be around 12 cents or a ~160% increase.
Overall this channel seems reasonable, but it also shows that SPS's former highs will be out of reach for a very long time. The worst outcome would be a lower low which would be at under 0.046 cents. If this happens, all bets are off as SPS could continue its downward trend..
As a general reminder: Please keep in mind that none of this is official investment advice! Crypto trading entails a great deal of risk; never spend money that you can't afford to lose!
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Staking SPS pays 17% return in SPS but there's 16% inflation, so net return is 1% on staked SPS? Plus the 10% in vouchers? So total return on staked SPS is 11%? Is that correct?
from my experience inflation does not really say much about price in crypto. For example 16% inflation just means that there will be literally 16% more of the token/coin in one year than before. But does that mean that the coin will then be worth 16% less? If you look at charts for every coin that has inflation you will see that this is not a good way of predicting price. Instead, it will be much more volatile. It could be up by 200% or down by 50%. The only thing that I think one can definitively say about a coin with a high inflation such as SPS is that there will be more selling pressure than buying pressure. This is the reason why SPS has been performing so poorly (although of course if you receive part of that inflation its performance is much better).