BitClout's Deflation Bomb Explained (and its Potential Effects)

By @HughJiang • Published June 5, 2021 • Reading Time: 6.5 Minutes

Recently diamondhands (the BitClout developers) announced the “Deflation Bomb” - the capping of the BitClout supply at around 11.5 million coins.

For reference, that’s about half the supply of Bitcoin.

 

Let’s talk about what this means for you, and what it means for the future of BitClout. 

Disclaimer: The information in this article is for informative purposes only. It does not constitute investment advice. The authors may hold positions in $bitclout or creator coins mentioned on this site.

What is the ‘Deflation Bomb’?

Up until now, new BitClout would be minted whenever someone deposited Bitcoin into the platform to buy BitClout. 

This meant that the supply of BitClout was theoretically unlimited - as long as more people were willing to buy from bitclout.com at face value prices, then the supply of BitClout could keep increasing.

That’s all about to change.

Around a week from now (on June 12th), the printing of new BitClout will be stopped, forever.

According to diamondhands, this will cap the total BitClout supply at a little less than 11.5 million. For reference, that’s about half the total supply of Bitcoin. 

This hard cap of the BitClout supply is what’s known as the ‘Deflation Bomb’.

After this Deflation Bomb, diamondhands will stop directly selling BitClout coins on bitclout.com. Instead, anyone who wants to buy $bitclout will have to do so via a third-party cryptocurrency exchange.

Sneak peek of BitSwap Exchange (took me less than 20 seconds to buy $bitclout!)

This implies that a BitClout exchange listing is coming soon, whereby prices would be determined by supply and demand on a $bitclout exchange, rather than being fixed by the BitClout developers.

This also means that we will finally be able to easily withdraw and sell BitClout on an exchange platform (like BitSwap Exchange 😉).


background

Get Notified when BitSwap Launches

$bitclout exchange listing coming soon!


But what’s the purpose of the Deflation Bomb?

I know what you’re asking. Why does all of this need to happen for BitClout to be listed on an exchange? And what does this mean for you and BitClout as a social platform?

Let me first address why this is important for the exchange listing. 

Up until this point, the price of BitClout was automatically determined based on the total number of BitClout coins ever minted. For every 1 million BitClout coins created, the official price of BitClout doubled. 

The problem?

This BitClout pricing model is not based on supply and demand. Rather, as supply increases, the price also increases - except that it starts increasing at a larger and larger amount as more BitClout is minted. 

No other asset I know of is priced this way. It’s almost as if the developers are setting an arbitrary price for BitClout - which isn’t sustainable at all in the long-run.

Furthermore, buying BitClout at the officially listed price on bitclout.com is a one-way transaction. You can buy BitClout, but can’t sell it back at the same price. 

The nature of this pricing model means that secondary exchange market prices are bound to be lower than the officially listed prices. In fact, in peer-to-peer OTC exchange markets, BitClout prices are generally 40% lower than the official prices on bitclout.com.

With this Deflation Bomb, the developers are limiting the supply of BitClout and will stop offering BitClout for sale on the platform. Instead, all BitClout prices will be determined on a supply and demand basis on secondary exchange markets.

This should make the transition to a demand-supply model much smoother. You won’t see big discrepancies between primary and secondary market prices anymore. All the buying and selling of BitClout will be done in secondary exchange markets. 

What are the effects of this Deflation Bomb?

The name “Deflation Bomb” makes it seem like BitClout will enter a period of rampant deflation, where its price will increase relative to other currencies like the USD. 

But, it’s important to understand that asset pricing is a complicated thing dependent on many factors. 

Let’s discuss some possible effects of this Deflation Bomb, and what it might mean for you (and for the future of BitClout).

Just a warning: I’ll be sharing both positive and negative opinions of the BitClout platform. If you have your own strong opinions and don’t want to read things that might go against what you think, then don’t read the rest of this article :)

1. BitClout goes Mainstream

Within the mainstream media, the most common criticism of BitClout was the inability to withdraw from the platform.

With this Deflation bomb and BitClout being listed on an exchange, this isn’t an issue anymore. Now, anyone will be able to buy and sell BitClout, with prices being determined by supply and demand rather than an arbitrary pricing curve.

Now, the media can’t say that BitClout is just a quick cash grab or scam by the developers. Diamondhands and the BitClout developers don’t directly benefit from $clout transactions anymore.

BitClout is becoming more legitimized and decentralized. 

And one of the most significant barriers to mainstream adoption (the inability to withdraw) is being eliminated. 

This means we’ll probably see more and more people eventually joining the platform.

2. OTC and Official $BitClout prices may start to converge

With BitClout becoming more legitimized and mainstream, it seems more than likely that OTC prices and official BitClout prices will start moving closer together. 

(An OTC transaction is where you find a private buyer for your BitClout and then exchange funds with them in a private transaction).

In OTC exchange markets on the BitSwap Discord, I’ve already seen prices increase around 20% from somewhere around $100 to around $130. 

Prices have also gotten a lot more volatile lately. I’ve seen people agree to buy at $150 per $bitclout, but I’ve also seen successful trades occurring at $120 per $bitclout. 

Here's what @mattpitts thinks about the deflation bomb:

Ultimately, where $bitclout's price will eventually end up is anyone’s guess. Nevertheless, this Deflation Bomb has clearly already had some effect on BitClout exchange markets.

3. Better long-term outlook for BitClout

As I already mentioned before, the previous pricing model for BitClout was probably unsustainable in the long run. 

This new pricing model, based on supply and demand, is a lot better for the platform in the long term. 

And the new exchange listing for $bitclout is obviously also much better for the long-term outlook of the platform. 

Reaction from @clayoglesby upon hearing of the Deflation Bomb

Right now, BitClout has around 300k total members. If the platform could grow to even a fraction of the size of Instagram (1 billion+ users) then $bitclout could completely skyrocket over the long term.

Existing $bitclout HODLers may also decide to buy more because of the better long-term outlook, which could also increase the price.

Either way, if when BitClout does become more mainstream and more people start using the platform, $bitclout prices will likely increase 📈 in the long-term.

4. BitClout prices could crash

Another possibility after the Deflation Bomb is that $bitclout prices on secondary exchange markets will completely crash, way below the current OTC price and way below the official listed price.

Here’s why:

When BitClout first launched, the platform was only open to private testers and investors (who were able to buy BitClout at super low prices).

Now that $bitclout is being listed on an exchange, these early investors are getting an easily accessible offramp to secure a return on their initial investment. 

Some of these investors have made up to 100x on their money (which is huge), and they may decide to liquidate part or even all of their $bitclout holdings, thereby pushing the price downwards.

It’s also possible that users who don’t believe in $bitclout will start to withdraw their money from the platform.

Here's some great insight from @Pierre_Heurtebize:

Heck, maybe this Deflation Bomb is just publicity for diamondhands. After all, from now until June 12th, any Bitcoin (BTC) deposited on the platform goes straight into their pockets. This Deflation Bomb could have been just a ploy to hype up the platform and pocket more BTC before finally abandoning the platform.

I don’t believe that’s going to happen, but I’m just sharing all the perspectives and outcomes I’ve thought of. 

With that being said, here’s a quick outline of what we talked about in this article, along with some key takeaways.

Takeaways

BitClout’s deflation bomb will limit the supply of $bitclout to around 11.5 million coins on June 12th. This is in preparation for the first $bitclout exchange listing, which we project to be on BitSwap Exchange within the next couple of days 😉.

After these exchange listings, anyone will be able to buy and sell $bitclout instantly at market rates using third-party exchanges.

The effects of this Deflation Bomb are difficult to predict. This event will likely be beneficial for the long-term sustainability of BitClout as a platform, and it’s likely more users will join as the platform becomes more legitimized with an offramp (thus increasing $bitclout prices long-term).


background

Get Notified when BitSwap Launches

$bitclout exchange listing coming soon!


However, it’s also possible that $bitclout prices may crash as people rush to withdraw into other currencies.

Ultimately, nobody knows what exactly will happen to BitClout. But as a HODLer, I’m (obviously) hoping $bitclout goes to the moon and brings decentralized social media to the mainstream masses. 

You’ll also notice I tried to stay away from giving you specific advice in this article. That’s because I don't know exactly what will happen to BitClout in the future, and also because you shouldn’t blindly take advice from strangers on the internet anyway. But hopefully, this article will have helped you better understand the Deflation Bomb, so you can make your own conclusions from here :)


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