Strategies for Investing in BitClout Creator Tokens
Whether or not you are bullish on the controversial new Bitcoin token, here are resources and ways to think through an investment strategy in creator tokens.
Disclaimer: The below is NOT investment advice. My intention below is to share thoughts, opinions, and approaches that are my own, my own only, and not affiliated with my employer nor any other group or institution. At the time of writing, I hold a position in the BitClout token and affiliated career tokens, but I am not an investment advisor, nor do I pretend to play one on the internet, nor am I involved in an official capacity with the BitClout protocol. I will likely update this article based on new findings or ideas.
This past week, the internet revealed the BitClout project’s slew of early institutional and individual investors. The press hit the project with healthy skepticism. The Twitterverse came out guns blazing about all the elements BitClout has in common with crypto scams. Many questions were asked about the reputation of a platform that used people’s likeness ostensibly without their permission to drive commercial gain. Scooter Braun talked about BitClout on Clubhouse. Chamath used his podcast, All-In, to expound on Social Capital’s investment in the BitClout token and protocol.
This project is different than other social media experiments. As accounts invest, pump, and dump individual “creator tokens” and share ideas, they jockey not necessarily for followers, but for account creator coin token valuation. An early adopter got a tattoo in response to a bet that emerged on the burgeoning BitClout.com, a front-end proof-of-concept for the project which is basically a Twitter front end.
It would be an understatement to say that BitClout isn’t without controversy. Other writers on the internet do a much better job of covering the controversy around BitClout and offering up their own critiques of the project, especially its slew of problems at launch. For all we know, BitClout could blow up in a great way, but it could also blow up in all the bad ways that folks have imagined.
(For this reason, I got a lot of flack on Twitter and in my DMs/texts from a diverse set of voices. I understand the healthy scrutiny, but the more severe responses were a little bit annoying given that others who had more bullish takes than I did have not been subject to the same scrutiny. Oh well.)
Time will tell, but in general, I don’t think it’s a good idea to allow the fear of a bad blow up prevent anyone from exploring new ideas and tools. That is, so long as an individual or group does not expose themselves to undue financial or privacy risk with which they couldn’t deal.
That all being said, there’s a tremendous amount of potential in BitClout, or at least a project similar to BitClout, assuming all goes well and assuming that legitimate scrutiny is navigated properly by the teams behind the project.
Let me repeat that: if the teams behind BitClout properly navigate the legitimate scrutiny on the project, then there is great potential. The items to navigate include but are not limited to: overcoming a scammy-feeling launch, properly open-sourcing the code, security concerns, legal/regulatory concerns, scaling operations properly, providing roadmap transparency, and eventually creating the ability to offramp BitClout without OTC and without breaking the economy around BitClout.
(Offramps via large exchanges usually take time – weeks to months to years – for even the most legitimate and excellent of crypto projects from inception to listing. And when they get to the exchanges, anyone can also dump the token, regardless of who they are or when they invested.)
Once the project and its blockchain becomes stable relative to the demand and load levied on it so far, the team has said that they will opensource the code, allowing others to create their own nodes, tools, and ideas based on BitClout. Remember, the current version of BitClout.com is just a front-end proof-of-concept; there are a lot of other germinating ideas on how BitClout’s backend can power interesting use cases for creators, entertainment, music, social media, and the world as we know it (here is an example from Jonathan Swerdlin).
So, say you are long BitClout. Say you think BitClout and its creator tokens might be monopoly money for now, but they could be something much more one day, and you believe that investing into or within the platform/protocol is worth it in spite of everything. Because I was one of the first accounts verified on BitClout, I often get questions about how to think about creator token investments. Before getting into that, there are a few tools to get used to using even this early on in the BitClout project:
BitClout Pulse and BitClout List – These are great tools that have debuted very early on the BitClout scene, showing coin market caps, coin value charts, and social media follower amounts. While they’re continuing to make changes, I recommend checking them out as part of understanding an important part of the BitClout account investment landscape.
Telegram, Whatsapp, and Discord Groups – Oftentimes the best investment advice comes from just cluing in on how masses of people are thinking about the space (think: memestonks on r/wallstreetbets). In terms of the groups to join, there are too many to list and I’m still developing opinions on which are the “best” to be a part of. Many of these sprung up in early March as the team behind BitClout began doing load testing, and some sprung up later. Some are actually nested in private discord servers on investing in NFTs and crypto in general, while others are fresh Telegram accounts that have branched off of other Whatsapp groups. Not only are these groups a great place to get a pulse on what other investors are thinking, but you can often get access to grassroots tools that others build. For instance, I saw some folks sharing access to a bot that will notify those subscribed whenever an account on Twitter tweets “Just setting up my BitClout!” along with the relevant public key. As might be expected, a thriving BitClout OTC community has grown within these groups for those who need liquidity sooner rather than later given that BitClout isn’t on a big exchange platform. Community members use escrow to swap other cryptocurrency for BitClout and vice versa.
Clubhouse –Lots of BitClout conversations happen on Clubhouse; it tends to be the same folks who talk about the entertainment industry, NFTs, or Crypto. Sometimes people talk too much, sometimes they say gems, but if you have the time to tune in and pay attention, you can find some really incredible thinkers on Clubhouse who are sharing nuggets of wisdom when it comes to cutting edge theories.
BitClout Itself - Since the platform is so new, it’s worth mentioning that there are a lot of scam accounts that are either pretending to be an institution that they aren’t or a celebrity/person they’re not. To mitigate this, be sure to look for folks with blue check marks on BitClout, or only make investments in folks whom you have personally verified in another way that you trust (I often reach out to them by messaging them on another platform to check on their legitimacy). You can also look back at how people are posting, what they’re posting about, and who else is invested in the coin as this can affect your decision to invest or how much you wish to put in.
Now, how do you think about which creator coins to invest in? How do you create alpha in this burgeoning space?
Let’s have a look at a great quote from Morgan Housel, who has some of the best wisdom around how humanity deals with money. In his book Psychology of Money, he talks about how it’s important to determine what financial game you’re playing. Oftentimes, we take financial cues from folks who are playing a different game than we are – this leads investment bubbles. So, the most important thing with any investing is to determine which game you are indeed playing. Otherwise, how do you figure out how to win?
Morgan says:
An idea exists in finance that seems innocent but has done incalculable damage.
It’s the notion that assets have one rational price in a world where investors have different goals and time horizons.
Ask yourself: How much should you pay for Google stock today?
The answer depends on who “you” are.
Do you have a 30-year time horizon? Then the smart price to pay involves a sober analysis of Google’s discounted cash flows over the next 30 years.
Are you looking to cash out within 10 years? Then the price to pay can be figured out by an analysis of the tech industry’s potential over the next decade and whether Google management can execute on its vision.
Are you looking to sell within a year? Then pay attention to Google’s current product sales cycles and whether we’ll have a bear market.
Are you a day trader? Then the smart price to pay is “who cares?” Because you’re just trying to squeeze a few bucks out of whatever happens between now and lunchtime, which can be accomplished at any price.
When investors have different goals and time horizons… prices that look ridiculous to one person can make sense to another, because the factors those investors pay attention to are different.
In the above, Morgan points to four different examples of time horizons: 30 years, 10 years, 1 year, and 1 day. These define each a mindset or quality for four different types of investments.
The Four C’s of Investment Evaluation
I have four categories of investment types each evaluated across a given coin’s “management” to “four C’s”: Converse, Create, Community, and Clock.
Converse: Is the person/entity behind the coin going to actually use BitClout’s use cases? This one is pretty straightforward: upside will only come from a token if the entity is actually using BitClout. While in BitClout’s early days, there is a lot of speculation around celebrities who may or may not use the token (and therefore, prices are going up and down), that speculation will smooth out such that BitClout token allocation moves toward accounts that are actually active on BitClout protocol tools and networks. The inactive accounts – however famous the entities behind them are – will fade out in favor of the entities that actively engage over time.
Create: Is the person/entity behind the coin likely to build new use cases on BitClout and/or promote new thoughts and use cases? This category of evaluation also includes the literal developers who break down and add to protocols and tools. As an example, you can think of the developer and startup community finding new hands-on use cases for Apple’s cutting-edge LIDAR tools. There are also community members who work hand in hand with the developers to show what’s new and upcoming for a protocol. Especially when it comes to early adopters to new tools/platforms/protocols, folks who provide “meta-analysis” of the platform to others become valuable creators on those platforms even if they aren’t “pure” creators or builders. Think about social media influencers who figure out the best practices of a given platform, or public evangelists for new tools and networks.
Community: Is the creator behind the coin already popular with an existing audience or community? It probably goes without saying that it is worth looking into creators who already have big and/or dedicated audiences elsewhere on social media or in the world. Whether they are an active personality, creative, influencer, celebrity, or otherwise, there is potential for investing in their token to go up. But there is a nuance: depending on which type of investment you are making (detailed below), it may not matter how successful they are with bringing their community over into BitClout protocols. If you are looking into short term gains, all you need is to get into a good creator account early before they start to make moves with BitClout itself. But if you’re investing for the long run, you’re going to want to invest in entities who have the highest potential to do new, innovative work with their communities over time while using BitClout as a conduit.
Clock: This defines thoughts on how long it takes for an investment to deliver alpha and if you should or should not exist the position at that point. Similar to what Morgan mentions in his writing, your time horizon in any investment is crucial. You’re going to have to behave differently to succeed in a short-term investment versus a long-term investment. It’s important to keep this in mind regardless of which asset class you’re thinking through in life, whether that’s looking at 401k index funds, options, stocks, angel investing, venture investing, crypto, or the BitClout ecosystem.
The Four Types of Investments
Given these areas of evaluation, these are the four types of investments that exist in the BitClout world. Depending on your goals and who you are, you might want to have a good allocation of all or only some of the below types of investments. For simplicity of language, I’m going to refer to the person/creator/management of a coin as the “entity” or “account” behind the coin:
Minnow Investments
You are betting that these accounts will likely go up in value, but slowly with an upside that is ultimately capped when it comes to basis points. This is because while the coin’s entity is likely to engage on the platform, they aren’t likely to build new thoughts or use cases, nor do they have a locked in community of fans from another platform. You might make investments in these accounts for non-monetary reasons. Perhaps you like the person behind the account based on an existing or new personal or internet friend relationship. Maybe you make a small investment based on the talent you see coming out of some work of theirs over time. This category can even include celebrities or influencers with audiences who you might expect to join the platform but be relatively inactive. The bottom line is: you do not expect these accounts to go down. You expect them to be around for a while within the ecosystem and to be a solid index-fund-like addition to your “portfolio”.
Converse: This account is active on BitClout, and you are betting that they will add value to conversations and be active going forward into the next so many months or years.
Create: This account does not necessarily add new thoughts or new use cases to the BitClout world, but it’s okay because they have other elements to add to the ecosystem.
Community: This account does not necessarily have an existing large community on another platform or in the world that they could port over into BitClout. If they do, you are betting that they – as a creator or entity - will either likely a) dedicate more time to other platforms rather than any that involves the BitClout protocol or b) will be active, but not as active or innovative as others.
Clock: You may be expecting that your tens or few hundred basis points could return over many months or years, but you aren’t expecting much. You’ve invested that much accordingly.
Dolphin Investments (Aka Flipper Investments)
Regardless of whether you are investing the equivalent of $1 or $1,000, you are betting that these accounts will go up in value over a short period of time such that you can get a great return in that period of time, and that you can exit the position. At the time of writing, any celebrity coin with a market cap over $10k (or perhaps even less) is not necessarily a good flipper investment unless you have reason to believe that it will go up to your desired return in a relatively short period of time of your choosing. For example, if you need/want to double a given investment amount within two weeks, then you need to find and make a bet in an account that has enough upside to actually double in value. Maybe you have access to knowledge that a global/regional celebrity or major influencer is about to join, and you believe that enough people are going to invest as a result such that the market cap will double. This is a good time to remember that many good investments in any asset class are based on asynchronous information, whether in the form of access to said information or in creating a more thoughtful analysis. If you’re looking for Dolphin Investments, it’s that much more important that you are actively using the tools and communities I mentioned above.
Converse: This account may or may not be active on BitClout. You are either betting that they will be and that that will lead to a successful short term increase in your investment, OR you are betting that OTHERS think that (and then that anticipation will lead to a short term increase in your investment, regardless of whether that person joins or is active on the platform or not).
Create: This account may or may not add new thoughts or new use cases to the BitClout world. However, many early adopters of BitClout (myself included) found that flippers invested in their coins because as early adopters, they were active in BitClout conversations which made them attractive short-term investments. These flippers sold off the gains after a few days, and the early adopters saw their market caps plummet. It absolutely makes sense, and it’s something to be aware of both as an investing strategy and as a reality if you are “managing” a given token. If entities do continue to create new thoughts or use cases, then their price will go up over the long run. That long run upside isn’t necessarily relevant for those looking for strategic Flipper Investments, although it is likely to create FOMO. It’s important that if you are looking for Flipper Investments that – for a given move or strategy – you do not play the same game as the long-term investors or you will subject yourself to FOMO and losing sight of whatever goals you are working toward. (The same advice goes for investors looking to the long term rather than short term.)
Community: This account may have an existing community external to BitClout, but they also might just be an active account with upside.
Clock: You have higher return expectations of the investments you make on a shorter time horizon, maybe over a few weeks or even days. You don’t necessarily care if the coin goes up in the long run (in fact, a Flipper might even hope it doesn’t go up so that they can cash in on feelings of being a winner and feel less FOMO). With this hypothesis on the clock, it means you’re likely to (and ought to) take riskier bets. Note that the Dolphin Investment landscape is the most likely to change over time; at the time of writing, Dolphin Investments are easier to come by given that the platform is still very early. As in the case of most crypto-based projects (or even with startups/IPOs/SPACs, where accredited investors and institutions can get priority access to lower prices in return for risk), early adopters can get access to more opportunities that are worthy of flipping, whether you look at Bitcoin, Ethereum, certain NFT projects, or anything in between. (That is, assuming each of those opportunities finds its footing or creates its value over the time horizon you’re looking to get returns!!)
On the topic of early investors, SoFi just debuted the opportunity for retail investors to buy into IPOs at their pre-trading prices so that retail investors can also take part in pre-IPO prices and aren’t penalized by the “pop”. However, SoFi also has a policy around flipping being disallowed that you can read on their website.
Shark Investments
These accounts undeniably add value in terms of the thoughts they share, the approaches they have, and the new tools and use cases they build. They feed off of each other, creating new realities. They may or may not include early adopters, but many early adopters will be among their ranks. While they aren’t whales, these are accounts that you expect will have a lot of upside over the long run because of what they will create and promote, most likely together. I have a hypothesis that NFT artists and other crypto creatives will easily slot into this type of investment because they are the most creative when it comes to implementing new consumer-appealing and dynamic use cases of technology. Some experiments they run will fail wildly, some use cases they build will be too core in nature and could flop with the mainstream. At these times, the Shark Investments will drop in price (Flipper investors beware! Know the game you are playing!). But ultimately, these communities will create the future and increase in value over the long term; they are clever sharks, and you have to watch out for them!
Converse: This account is active on BitClout, and you are betting that they will add value to conversations and be active going forward into the next so many months or years.
Create: This account adds an outsized amount of value over time in the way of new thoughts and use cases to the BitClout world.
Community: This account does not necessarily have an existing large community on another platform or in the world that they could port over into BitClout, but they also might. If they do, they either leverage the legitimacy bestowed on well-followed creators or they can succeed in swinging their community and fans into BitClout itself. Whether they have an existing following or not, they still create outsized value. Existing followings are just gasoline on the fire.
Clock: You expect that this coin will return outsized gains over the long run. You’re likely to HODL.
Whale Investments
These are accounts who you believe – in spite of being already “worth” in the multiple thousands or tens of thousands per coin – are likely to skyrocket even higher in terms of value. Think of the investor who aped into Ariana Grande’s token with tens of thousands of dollars’ worth of currency; that is theoretically a big Whale Investment bet that Ariana (AKA The Queen) will arrive on the platform, be active, and use BitClout in new innovative ways while giving back value to her audience and fans in unprecedented ways. Don’t be deterred by the high coin values: if you truly believe these Whale Investments are going to skyrocket, even investing a small amount might be worth it.
Converse: This account either is active on BitClout or likely WILL be active. You are betting that they will be active enough that they will add value to the conversation over the next so many months or years. You may even bet that they will abandon other forms of social media, depending on who they are.
Create: This account either a) connotes legitimacy to BitClout through their usage of the platform based on their existing fame or b) adds an outsized amount of value over time based on how they use the platform itself. Let’s take the example of Ariana Grande: maybe because she offers first access to concert/event tickets to her top coin HODLers, more superfans will get involved in the ticket buying protocol that uses BitClout for verification. Maybe niche creators on YouTube switch over from Patreon/donation-based operations to BitClout/equity-based use cases when it comes to raising money for their next projects. The best Whale Investments will create headlines and extreme innovation through being creative in their uses of the protocol as it scales.
Community: This account has an existing large community on another platform or in the world that they could (and most likely WILL) port over into BitClout and its upcoming use cases.
Clock: You expect that this coin will return outsized gains over the long run. You’re likely to HODL.
Time will tell how the ecosystem develops, or if it does. But there you have it: a (hopefully) evergreen framework for different types of investments in the world of BitClout.
I’d be curious to learn more from you, and what approaches you have to making investments and creating use cases in this interesting new ecosystem.
Who are your Minnow, Flipper, Shark, and Whale bets?
What answers do you have? And more importantly, what questions?