So I wanted to make a post about the economics of hbars SPECIFICALLY on whether the price will go up or down from its current price of about 0.08 USD on Jan 31st, 2021 and discuss what the value is and how it is defined and calculated.
So I was thinking about this long and hard and I don't think it's an easy subject to wrap our heads around if you really think about it because you will have to understand how currencies work in general and how they get their value, especially with a new currency and moreover a crypto currency to top that off.
But before I start talking about hbars, I wanted to establish a consensus of understanding of how familiar currencies work. So let's take the USD. USD is pretty stable (as of now at least) because we know how much a dollar is worth. We know that $5 buys us a hamburger or a starbucks coffee. We agree with this value as we work for this $5 to buy this product or that product or any other service. So we have at least a frame of reference that $1 USD is worth this much in our heads because we've experienced earning it and we have bills paid in it and we trust it (for now) that it will continue to have this same value in the near future.
So with Hedera, services are paid in USD and not hbars. This was intentional because Hedera wanted users to pay and get paid in a relatively stable currency (currently at least). This now brings up interesting dynamics. For example, if I as a service charge 0.08 USD (worth in hbars) for a file storage or file transaction, that means I get 1 hbar if the current price of hbar is 8 cents for that 1 transaction. So I service say 1000 of these transactions today to get 1000 hbars in transaction fees. I keep this for 30 days and the price goes up to 0.16 USD per hbar. I can now sell it to the market at twice as much in USD. This is great for me but it incentivizes me to hold hbars for the future to speculate that it may keep going up and up. Furthermore, when price goes up too fast, it also attracts speculators to also buy and hold and sell at a higher price one day. So it could be an event where a bubble forms like what we see bitcoin doing now. This is bad for Hedera and heads of Hedera and council members will not like this as it creates instability in the ecosystem of servicers and users of the platform/network. It's as if the USD goes up double in a month and then by half the following month. No American would like this instability since it creates confusion, fear, greed, etc. to enter the minds of users which is not what the function of currencies should be (at least if you're not a speculator, which most shouldn't be if they are just using the Hedera services as is and not trying to profit from a rising hbar currency).
I'm trying to understand what Hedera's heads' and council members' intent is for the price of hbar. I would bet that they want it to be stable so everything is fair. They could care less if speculators make money in an increasing hbar coin price. Their role for the Hedera network is to keep the trust in developers and users and that means a stable price for the coin. I would bet that if they see the price jump too much, they will meet and agree to release more hbars into circulation to try to stablize the price and to dampen any speculators from blowing the bubble even more. The scenario of what bitcoin is going through will be a nightmare for Hedera to deal with, even if their fees are in USD, because as I explained above, it gets paid out inversely proportional in hbars so a provider or user could see huge swings in how much hbars they are earning and it may not be fair for them. For example, if hbar price (in USD) goes up double in month of Feb and I as a provider got paid 10,000 transactions in hbars in Feb but didn't cash that out into USD until March where the price in USD got cut in half back to original, then I basically got half payment in USD. This forces me to constantly convert to USD if I don't want to speculate what the price will be in the future. Inversely, I would keep my hbars for a long period of time if the price keeps going up and up in a big way (say more than 30% per year).
So I have a strong feeling Hedera really wants to stabilize hbars and basically peg it to the USD for now at least (USD will not be the reserve currency and hbar will have to be pegged to some other currency in the future but that's for a different discussion.) I mean a small increase in price is not too bad as long as it's steady, maybe 20% per year is fine as well. The only scenario where I think Hedera won't be able to keep the price from increasing too fast is if a massive amount of users start using Hedera which will force demand for more hbars which will increase the price due to supply/demand even if they try to release more supply of hbars into circulation. If that's the case, I think it would be great for all anyways since anyone holding hbars can sell at a later time for more USD, as long as the price doesn't drop like a bubble.
An aside note: Hedera board members and founders don't lose or gain anything from releasing hbars into circulation to bring down the price proportionately (keeping total market cap the same) since market cap is market cap, and their goal is keeping the coin price the same even if they have to release more coins into circulation - they would have more coins in circulation while having a stable price than to have a rising coin price with the same amount of coins in circulation, each scenario totals a higher market cap as the Hedera network grows in uses, which is Ok for them. Of course increasing in both is also OK as long as price doesn't go back down too much or if price is too volatile in either direction.
I think speculators would not gain too much from this coin because Hedera's best interest is to keep the price relatively stable for their users of the platform. It's not like bitcoin where no one controls it and no one has an objective of where the value of that currency goes to - only the speculators who want to buy it just to sell it at a higher price to someone else. Now I hope that I'm wrong in my analysis and that we will see huge adoption rates far more than what we've seen so far pushing the price anyways.
The thing is, I wouldn't know how to even calculate what "too much" demand for hbars is to the point where it has to increase the price (without speculators pushing it) currently even with more release of hbars in circulation. Hell, I don't even know if this current 8 cent will hold up. I really can't calculate what this 8 cents per hbar really means because there's no frame of reference from long-enough past usages. How do you really get to know the intrinsic value of a currency? If there was history of the currency, then yes we can see where its headed. For example, 6.4 RMB = 1 USD currently so if the Chinese economy does well compared to USA then less RMB will be needed to convert to 1 USD, but the number of 6.4 has already been established for decades. It could of easily been 1 RMB = 1 USD to start off and from there it goes up/down from that point, just like 1 EURO is whatever it is and 1 GBP is what it is now and goes up and down from there. So the question still remains, is 8 cents for 1 hbars a fair value? What if the fair value is actually 1 cent currently, and from there it goes up or down given supply/demand. What if everyone is way off? Similarly what if it's supposed to be $10 now and from there it goes up/down from supply/demand forces. There's no history to have a frame of reference. I don't know if we can use market cap to calculate because hbar is not a business, it's a currency. We can't use market caps of other coins because who's to say they aren't in a bubble and are massively overvalued. I mean alot of US stocks have a bloated market cap because they are in a bubble like Tesla so supply of currency inflates that market cap so it's all so confusing when trying to value anything against anything else in a time like this. Take Apple's market cap of $1 tril. If Hedera will be 10% of that, that would mean $2 USD per hbar but again Apple is trading at a multiple of 35 p/e or whatever. Who's to say cryptos should even have a multiple p/e ratio at all. They are currencies.
I wanted to know what your thoughts are and hopefully shed some light into how to really calculate the current value of hbars in USD. There might be basic calculations one can do to measure all this like supply (release in circulation) and demand (services paid in hbars from transactions) but the question that is very difficult to answer I think is whether the current 0.08 USD per hbar is overvalued or undervalued, and no I don't think just because Hedera will do great in the future means it's undervalued because what if 0.02 USD should be the price and 0.08 price is just the projected value in 3 years from now.
I truly want to know this as I potentially am putting a sizable portion of my portfolio into HBARS so hopefully I will get objective answers more than speculative answers.
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