It’s been a wild ride for retail investors in recent months. There was the Reddit-fuelled short seller attack in January, followed by the surprise popularity surge of non-fungible tokens (NFTs), meanwhile SPACs are losing their lustre and the S&P 500 continues to soar. Then there’s excitement in cannabis stocks and let’s not forget the sensational rise of Bitcoin, Ethereum, Cardano and most outrageously Dogecoin. So, what next for the retail investors that love to jump on the latest hyped-up bandwagon?
Bitclout is a new cryptocurrency meets social media craze, sweeping retail investors into a frenzy. It could aptly be described as a mash-up of Twitter, Robinhood and Bitcoin, only it hasn’t yet achieved the fanbase of these three entities.
BitClout is attempting to decentralize social media in much the same way as Bitcoin is decentralizing the financial system. And it’s an open source blockchain project that has no one company behind it. Nevertheless, it still has founders.
So far, the reception to BitClout is deeply divided. Some believe it’s nothing but an outright scam, with Bitcoin building up in the founder’s wallet, which he/she could cash out and disappear. Others absolutely love the concept and are here for the community spirit and chance to generate extreme wealth.
Who will be right? It’s too early to say. There are clearly big red flags in the details, but there are also some exciting aspects too. It will come down to how genuine, ambitious, and good hearted the founders are.
So, how does BitClout work?
When you join BitClout you must buy BitClout tokens using 0.001 Bitcoin in order to interact on the platform. Once you’ve done this you can buy ‘Creator Coins’, which are coins linked to the many personalities that appear on the platform. This makes BitClout an asset class tied to individual reputation rather than a company or commodity.
You can buy or sell creator coin of the people that interest you. The price goes up as more people buy. And you have your own coin attached to your profile too.
Currently, Elon Musk is top of the list – this is not much of a surprise. He’s a popular character on Twitter, with a 51 million follower count and blue tick. He’s also become somewhat of a crypto legend with his Dogecoin memes and recent Bitcoin buy through Tesla.
Nevertheless, when clicking on the @elonmusk link, it takes us to a page where it states, ‘This profile is reserved @elonmusk has not joined Bitclout yet’. Along with this it states @elonmusk has 13894 followers and coin price $67,884.30.
Fear of missing out (FOMO) is the real driving force behind the site because coin prices are designed to increase in value in a similar way to compound interest. In fact, the price of BitClout doubles with every million sold. Meaning a compounding effect is driving the price up exponentially.
A similar calculation takes place to raise the price of Creator Coins based on the individual’s popularity.
The formula for calculating a Creator Coin’s worth is listed in the whitepaper.
Price in BitClout = .003 * creator_coins_in_circulation^2
Price in USD = .003 * creator_coins_in_circulation^2 * bitclout_price_in_usd
This point that it pays to be early, increases FOMO. Thereby, exciting investors into pledging bitcoin to their favourite influencers or celebrities in the hope that they’ll soon become very rich.
Will Elon Musk join BitClout?
Elon Musk could join BitClout, claim his coin, and collect some of the current $67k+ investment pledged to his name.
If Elon chose to sign up to BitClout and claim his coin, to unlock it, he’d have to tweet out his BitClout public key and tag #bitclout in the process. Here’s where BitClout’s marketing has massive potential. For if Elon did this, his tweet would instantly generate a whole stream of new traffic to BitClout.
However, it seems there may be ways around this compulsory tweeting for the rich and famous. Chamath Palihapitiya appears to have joined BitClout, but he’s never been active on the platform and does not appear to have tweeted the sign-up process.
In second place is @naval (also not claimed), which refers to angel investor Naval Ravikant.
And in third place is someone called @craig. His coin is currently at $35,961. It turns out he’s a major player in the BitClout domain (a possible founder) and claims to donate his founder rewards to clean water charities.
Then there’s @diamondhands, assumed to be BitClout’s founder. It’s believed this is Nadar Al-Naji, an ex-Google employee and founder of cryptocurrency BASIS, which is now being shut down. However, there’s a lack of proof that it’s actually him or if there’s a team of developers behind the platform.
The company is thought to have received over $225 million worth of Bitcoin so far, and it turns out there are some impressive early investors. These include Sequoia Capital, Andreessen Horowitz, Chamath Palihapitiya’s Social Capital (might explain his verified account status), Winklevoss Capital, Coinbase Ventures, and Reddit co-founder Alexis Ohanian.
It seems they pre-bought tokens before the launch, rather than actually investing in a specific company. But in doing so, they must know who’s behind the platform.
Many red flags
In a nutshell, the group behind BitClout scraped the top 15,000 Twitter account credentials to kick-start the platform. This waves an immediate red flag because data scraping is a legal grey area and using the account credentials to attract investment, without permission, seems a pretty shady way to start a business.
Using identities without consent, really annoys those people involved. Particularly as retail investors are jumping in and spending their bitcoin on profiles that have not been verified by the person they’re betting on.
On the negative side of the fence, BitClout doubters see a close resemblance to Bitconnect. This was an open-source cryptocurrency that was connected with a high-yield investment program. Tokens selling on Bitconnect reached a high of $400 in 2017, only for it to turn out to be a massive Ponzi scheme that went bust, leaving the tokens worthless. But BitClout being called a scam is not simply based on profile scraping.
According to website Decrypt, there’s also a blockchain trail leading to some suspect end points. While some of the funds were heading for Coinbase and Kraken, the majority ended up in Amber Group, a Hong Kong-based exchange, and some ended up in a dark and murky part of the net called Hydra. This may have been to pay twitter bots to spread word of BitClout to the masses.
The biggest red flag of all, is that you can buy BitClout using Bitcoin, but at this time, it’s not possible to withdraw that investment on the site. Although, there’s now a third-party site that will allow you to do so for a massive fee.
Winners and losers
Where there are winners, there are inevitably losers too. And with the rise of the retail investor, it seems the lines between gambling and investing are rapidly blurring.
In the UK, many avid football fans lost a fortune last month, when popular football stock market platform Football Index fell into administration. It left investors nursing close to £90 million worth of losses. In fact, the collapse of Football Index is being described as the biggest failure of a gambling business in British history.
But it’s a story all too familiar in the murky world of crypto too. A BBC podcast called The Missing Cryptoqueen documents the story of Dr Ruja Ignatova, who persuaded millions to invest in OneCoin. Then completely disappeared, wiping out investors in the blink of an eye.
So, is BitClout going to become the social asset we never knew we needed but won’t be able to live without? Or will it crash and burn like Football Index, leaving retail investors with more tales of woe than big wins?
With bulls and bears out in force, it remains to be seen.
What is the intrinsic value of BitClout? This is hugely speculative. Betting on a popular character and buying Creator Coins early enough may be very tempting, and the value may appear to soar. But if you’ve no way of cashing out that investment, then it’s simply a paper trade that means nothing.
When the odds are stacked in your favour and probability rules the roost, it can seem you’ve nothing to lose. But as these stories show, it pays to be wary. In any Ponzi scheme, the early adopters often walk away very rich while thousands are left holding the bag.