On Tuesday, BitConnect introduced closing its Bitcoin lending and alternate platform, following intense hypothesis that the crypto neighborhood was a Ponzi scheme.
In its assertion, the corporate insisted this wasn’t the tip for BitConnect, however its cryptocurrency had already dropped in worth by greater than 90% to a lowly $17.25 by Wednesday.
For these invested in BitConnect Coin, that is the unhealthy information they have been praying would by no means come. For the monetary consultants and BitConnect sceptics that predicted a crash, that is the inevitable unhappy ending to a narrative that ought to most likely have by no means begun.
So let’s check out the rise and fall of BitConnect rip-off and what crypto traders can study from the business’s most controversial platform to date.
BitConnect In Layman’s Phrases
Earlier than we delve into the BitConnect story, let’s simply make clear just a few key definitions. Sure, these phrases shall be well-known to lots of you, however we wish to be 100% clear about what we imply after we use the next phrases on this article:
- Bitcoin: The primary and best-known decentralised cryptocurrency.
- BitConnect: An organization that exchanges Bitcoin for its personal BitConnect Coin (BCC) and supplies various funding alternatives with its cryptocurrency
- BitConnect Coin (BCC): BitConnect’s personal cryptocurrency which might solely be purchased utilizing Bitcoin or USD
- A Ponzi scheme: A selected sort of funding rip-off the place earlier traders are paid off by the income made out of new ones – usually accompanied with unrealistic monetary rewards
BitConnect shutting down its lending and alternate platform will not be a confession the corporate’s enterprise mannequin is certainly a “Ponzi scheme” – and we’re not in a authorized place to say it’s both.
Likewise, it hasn’t denied the allegations and even acknowledged them past citing two Stop and Desist orders within the US as a motive for shutting down its lending and alternate platform.
Earlier than we go into additional element concerning the authorized response to BitConnect’s enterprise conduct, let’s clarify how the corporate truly operates.
Basically, BitConnect revolves round shopping for BitConnect Coin (BCC) and utilizing the cryptocurrency to have interaction in certainly one of three funding alternatives:
- BitConnect Coin lending: You lend the corporate your BCC in alternate for substantial rates of interest
- BitConnect Coin buying and selling: You purchase and promote BitConnect Coin as the value fluctuates with the purpose of creating a revenue
- BitConnect Coin mining: Earn BitConnect Coin by confirming earlier transactions accomplished utilizing the cryptocurrency (mining)
So BitConnect positioned itself as a platform the place you can’t solely purchase cryptocurrency but additionally make investments it to get a greater return in your preliminary outlay.
Basically, the promise was that your cryptocurrency would begin incomes cash for you when you sit again on a recliner, sipping on a glass of single malt and chuffing on a Cuban cigar.
All of it sounded nice. For a lot of, it sounded somewhat too nice, and also you solely have to have a look at the curiosity promised by BitConnect to get an thought of the place the scepticism got here from:
Supply: BitConnect
That’s proper, for lending the corporate its personal cryptocurrency (which you initially purchased from it utilizing Bitcoin or USD within the first place), you possibly can get pleasure from as much as 40% curiosity per 30 days and 0.25% per day – what a deal!
Simply to place that into context, 0.25% curiosity per day works out at a tempting 91.25% assured return per 12 months. Then you definately get a bunch of referral bonuses which may take your return as much as 127.25%+ per 12 months – all assured, risk-free curiosity.
And that’s not even counting the “as much as 40% month-to-month return” that might add one other 480% to your annual return, which suggests you possibly can earn someplace within the area of 607.25% of curiosity per 12 months alone.
So your $100,000 funding is assured to virtually double over the course of a 12 months, and the possibilities are you’ll earn excess of that – potential half one million {dollars} in curiosity after simply 12 months!
You’d be loopy to not dump all of your Bitcoin or USD for BitConnect Coin at these charges.
Trace: Simply in case the sarcasm isn’t coming throughout strongly sufficient within the part above, it’s too late to lose all of your cash within the BitConnect “Ponzi scheme” now anyway.
Specialists Shortly Turned In opposition to BitConnect
BitConnect’s funding proposition captured the eye of a rising variety of Bitcoin holders. Nonetheless, it additionally caught the eye of main members of the cryptocurrency neighborhood and monetary consultants, lots of whom accused of being a Ponzi scheme – and never a very refined one at that.
In November final 12 months, the UK Authorities threatened to close down BitConnect except it may show its enterprise mannequin was official. A discover from the British Corporations Home revealed
Supply: British Corporations Home
The British Authorities gave the corporate two months to show it wasn’t an funding scheme or face having its belongings seised. The discover revealed BitConnect was registered by a British man by the identify of Ken Fitzsimmons who held 75 % of shares within the firm on the time.
Till this level, there was no data on the nameless folks behind BitConnect and particulars stay sparse even now. The identify Fitzsimmons doesn’t seem anyplace on the BitConnect web site, and the platform stays one thing of a thriller within the days after shutting down its key providers.
Earlier this month, the corporate additionally acquired two Stop and Desist orders from the Texas State Securities Board and the North Carolina Securities Division.
The mounting authorized stress build up towards BitConnect affected the worth of BCC, however the cryptocurrency saved rebounding as extra folks jumped on board. It wasn’t till the corporate determined to close down its funding and commerce platform that the worth of BitConnect Coin plummeted.
The corporate says the selection to halt the platform was a direct results of the 2 Stop and Desist orders and escalating damaging press surrounding BitConnect.
Listed below are the three causes it gave for taking the transfer:
- The continual unhealthy press has made neighborhood members uneasy and created a insecurity within the platform.
- We’ve got acquired two Stop and Desist letters, one from the Texas State Securities Board, and one from the North Carolina Secretary of State Securities Division. These actions have develop into a hindrance for the authorized continuation of the platform.
- Exterior forces have carried out DDoS assaults on the platform [sic] a number of instances and have made it clear that these will proceed. These interruptions in service have made the platform unstable and have created extra panic contained in the neighborhood
Regardless of bringing its headline providers to an finish, BitConnect says this isn’t the tip of issues for the corporate.
“This isn’t the tip of this neighborhood, however we’re closing a few of the providers on the web site platform, and we’ll proceed providing different cryptocurrency [sic] providers sooner or later,” mentioned in its assertion.
Why Was BitConnect Accused Of Being a Ponzi Scheme?
Supply: Bitcoin Information
For the previous 12 months, BitConnect has been accused by monetary consultants and key members of the crypto neighborhood of being a Ponzi scheme, together with the Ethereum co-founder Vitalik Buterin.
It’s not solely the corporate itself that got here beneath hearth both, but additionally various influencers to advertise the platform to would-be traders – in return for these tempting referral charges, in fact.
We already know BitConnect promised some fairly outrageous returns for folks’s investments, however maybe hovering Bitcoin costs over the previous 12 months made the hype extra plausible, particularly for eager traders seeking to get in on the cryptocurrency motion.
There have been loads of different crimson flags pointing in direction of a BitConnect Ponzi scheme, although. So what ought to BitConnect traders have been searching for and how will you study from their errors?
Lesson #1: Too good to be true
Above all, the funding returns BitConnect was promising ought to have given the sport away from day one. Apart from the odds being laughable, there’s no such factor as a assured funding; your entire premise of investing depends on uncertainty and with out threat there merely can’t be winners or losers.
In any regular context, final 12 months’s Bitcoin surge would have been too good to be true, and this most likely made lots of people imagine something is feasible on this planet of cryptocurrency. Even nonetheless, the guarantees BitConnect was arising with have been so insane it’s wonderful anybody signed up in any respect.
Lesson #2: Actual companies are fairly good at spelling
Rule #101 of copywriting is to get your spelling and grammar proper, particularly whenever you anticipate folks to belief you with their cash.
It’s truthful to say the crypto neighborhood isn’t all that trusting of centralised banks (sort of the entire level of cryptocurrencies) however you’ll do effectively to seek out any spelling errors on HSBC’s web site.
But the spelling and grammar on BitConnect’s web site is not any higher than these emails from Nigerian princes promising thousands and thousands of {dollars} if you happen to solely hand over a minimal launch price of some thousand.
Lesson #3: The BCC funding course of
Let’s faux for a second that BitConnect made much less formidable guarantees concerning the curiosity returns on its funding mannequin. Let’s additionally give the multimillion firm a break for not having a superb command of the English language – in any case, cryptocurrency is a worldwide recreation.
Even nonetheless, essentially the most alarming signal that BitConnect is nothing greater than a Ponzi scheme is the funding mannequin its selling. It goes somewhat one thing like this:
- You give BitConnect your Bitcoin
- You get BitConnect Cash (BCC) in return
- You then give these BCC again to BitConnect as an funding
- BitConnect provides you nothing in return apart from promised curiosity
Basically, you’re giving BitConnect your Bitcoin after which giving it again the cryptocurrency it gave you in alternate for it. You’re handing over your Bitcoin and your BitConnect Coin in alternate for a promise – a promise that has now been damaged that the lending platform has shut down and the worth of BitConnect cash has plummeted.
Crucially, your curiosity funds are all the time made in BitConnect Coin. You don’t get your Bitcoin again, and your return is solely dependent in the marketplace worth of BCC on the time of getting your payout – assuming you get one in any respect, in fact.
Lesson #4: The BCC payout course of
The most effective half is Ponzi factor to BitConnect’s funding mannequin, and that is the place the Ponzi factor comes from.
By paying off earlier traders with the BitConnect Coin, new traders hand over (the value of which frequently rose as demand elevated) the system artificially will increase the market worth of BCC, which not solely pays for your entire setup but additionally makes all the things BitConnect holds extra worth.
With each BitConnect mortgage, the worth of its cryptocurrency will increase however traders by no means get to see the profit till their contract is accomplished. Even then, your payout is in BCC, not your preliminary Bitcoin funding. Which suggests BitConnect has pocketed your Bitcoin and the inflated worth of the BitConnect coin you gave again to them.
What Can We Be taught From The Fall of BitConnect?
The unhealthy information for BitConnect Coin traders is that BCC worth has plummeted greater than 90% in the previous couple of days and there’s little probability of this bettering.
BitConnect says it’s going to pay BCC holders $363.62 for each BitConnect coin, however quite a few customers say they’re unable to take any cash out of the location.
Some traders have already reported shedding a whole bunch of 1000’s of {dollars} by investing in BitConnect.
As for the nameless house owners of BitConnect, they most likely cashed out on the inflated value of BCC earlier than closing the platform, which might make this a multibillion-dollar Ponzi crypto scheme.
Better of all, BitConnect says it isn’t finished but.
The day after closing its lending and alternate platform, the corporate launched an announcement asserting plans to create a brand new alternate system that helps a number of cryptocurrencies. It additionally says the drop in BCC worth is because of it releasing all of its members’ cash on the similar time and expects the worth to extend as soon as once more.
It will likely be fascinating to see if folks proceed to purchase into the BitConnect idea, assuming it manages to remain in any capability in any respect. For individuals who obtained burned by the BCC crash, this serves as a bitter lesson in cryptocurrency funding.
Above all, this unregulated market supplies a brand new playground for scammers to capitalise on and there shall be extra circumstances like this sooner or later.
The excellent news (for many who didn’t get hit by BitConnect) is that the warning indicators normally are fairly simple to identify. Within the case of BitConnect, it was painfully obvious that one thing critically dodgy was occurring and we are able to solely hope the quantity of people that misplaced greater than they will afford is minimal.
For everybody else, this acts as an vital reminder about the basics of investing in unstable commodities – and figuring out separate the scams from the real alternatives.
What do you consider BitConnect rip-off and shutting its Bitcoin lending and alternate platform? Do you agree that BitConnect was one of many greatest cryptocurrency Ponzi schemes? Tell us within the feedback beneath!
