I've seen this exact question in a short form message and I don't exactly remember on which platform it was. I started to give an answer but this answer simply didn't fit into a short message or two or three of them. I gave up and decided to keep the thought alive and make a post about it. Here it is...
So why is the price of Hive falling?
Is it because people power down and take their money out? Is it because the DHO pays too much money? Is it because there is not that much development on the chain? Is it because of the inbuilt inflation of the Hive token? Is it because of the 15% APR that is paid on HBD?
I would say that all this may contribute to prices going down but in my opinion this isn't the main reason.
The fish is moved by the current
With every year, the crypto world becomes more interconnected and institutionalized. This has several effects that can be neglected. A couple of years back, we could see the share markets drop in price and BTC going up. Nowadays, when the share markets plunge, crypto follows as well most of the time. Funds, derivate products, leveraged products, aggregated products have lead to this phenomena. The same happened in the fiat finance sector over the years. Everything is more and more correlated. Things move more in synchronization.
I have watched a report from a private research equity team. They have found out that the correlation between asset categories has become so strong that they deemed diversification a waste of resources. Their research tries to figure out which assets outperform the markets rather than to create an equilibrated portfolio.
Let's take the picture of an ocean and you have all the assets in the world that are represented by a fish. Some fishes are bigger, some are stronger, some are weaker but all of them are affected by the currents of the ocean. When the current pushes, they go more or less all in the same direction. Some faster, some slower, some try to fight the current but they struggle. We could say that with the internet and the automatization of the markets this currents have become much stronger and the fishes can hardly extract themselves from the direction of the current.
Ok, and what has all this to do with the price of Hive?
Hive is a rather small fish and when the current pushes prices down, hive is following suit. So when we look at the evolution of the hive price, we always need to see the broader picture. How is the market evolving? If everything is red, we shouldn't be surprised that hive goes down in price as well.
On the other side we often also see that hive is pulled along when the markets go up. However, often not as strongly as the rest of the market.
I don't believe that's true?
Well I can understand that but the best way to verify this theory is to look at the real correlations. On Defillama you can actually have a look at how correlations are among different tokens.
I put Hive in comparison with BTC, ETH, SOL and BNB over the last year. It was interesting to see that the Hive shared the biggest correlation with ETH and a positive correlation with all the other assets. The closer the correlation is to 1, the more the tokens evolve in parallel. A correlation of zero would mean that there is no correlation at all. A correlation of close to -1 would mean that the tokens evolve in exact opposition.
Of course, not all tokens evolve exactly the same but the correlation is there and in my opinion getting stronger. The more a token is linked to the other ecosystems, the stronger the correlation will get. This means that hive will be linked stronger to the market if it gets bigger and more interlinked. Every new listing on CEX's and DEX's, every new basket where hive is a part of, every derivate product on hive contributes to that. Is this bad? Is this good? I think that we need to get as much interlinked with other blockchains and the markets to have the option to real become a bigger player in the crypto world and to attract more funds.
As a small fish, Hive has its own ecosystem but it is limited in size and number of users. It will go down with the markets but go up slower than the markets because funds evade it. We need to be interlinked with the markets as much as possible to profit from them when they go up...
With @ph1102, I'm running the @liotes project.
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