BitConnect, a Pyramid Scheme That Has Collapsed

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Bitconnect, which has been accused of running a Ponzi scheme, shuts down

Bitconnect, the lending and exchange platform that was long suspected by many in the crypto community of being a Ponzi scheme, has announced it’s shutting down.

In a release on its website the platform said the shutdown is attributed to “continuous bad press” surrounding the platform, two cease and desist letters from both Texas and North Carolina’s securities boards, and continuous DDoS attacks on the platform.

While the platform says they’re refunding all outstanding loans at a rate of $363.62 USD (an average of the token’s price over the last 15 days), the Bitconnect token is currently trading down

80% and worth less than $40, so while users may have been made whole on a BCC-equivlent, many are certainly suffering severe financial losses in terms of USD or Bitcoin (which is how they made their original investment).

Many in the cryptocurrency community have openly accused Bitconnnect of running a Ponzi scheme, including Ethereum founder Vitalik Buterin.

The platform was powered by a token called BCC (not to be confused with BCH, or Bitcoin Cash), which is essentially useless now that the trading platform has shut down. In the last The token has plummeted more than 80% to about $37, down from over $200 just a few hours ago.

If you aren’t familiar with the platform, Bitconnect was an anonymously-run site where users could loan their cryptocurrency to the company in exchange for outsized returns depending on how long the loan was for. For example, a $10,000 loan for 180 days would purportedly give you

40% returns each month, with a .20% daily bonus.

Bitconnect also had a thriving multi-level referral feature, which also made it somewhat akin to a pyramid scheme with thousands of social media users trying to drive signups using their referral code.

The platform said it generated returns for users using Bitconnnect’s trading bot and “volatility trading software”, which usually averaged around 1% per day.

Of course profiting from market fluctuations and volatility is a legitimate trading strategy, and one used by many hedge funds and institutional traders. But Bitconnect’s promise (and payment) of outsized and guaranteed returns led many to believe it was a ponzi scheme that was paying out existing loan interest with newly pledged loans.

Below is the chart that would determine how much users would make the using the platform.

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All Bitconnect loans were denominated in U.S dollars but had to be made in BCC, the platform’s native cryptocurrency. So in order to make a loan users would have to deposit bitcoin into the platform then exchange it for BCC at whatever the market rate was. And loan interest and principal was also only paid out only in BCC, meaning users would have to convert it back to bitcoin (and then if desired, USD) after the loan term was finished.

The requirement of having BCC to participate in the lending program led to a natural spike in demand (and price) of BCC. In less than a year the currency went from being worth less than a dollar (with a market cap in the millions) to a all-time high of

$430.00 with a market cap above $2.6B.

But now with no other uses for the token, it’s likely that the price will continue to plummet. The company did say that the ICO for their Bitconnect X trading platform will still happen, and that trading for the BCC token will continue there.

How BitConnect pulled the biggest exit scheme in cryptocurrency

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In a menacing turn of events yesterday, Bitcoin investment lending platform BitConnect abruptly announced it is shutting down its lending and exchange services. But while this sudden “curveball” might have come as a massive surprise for thousands of gullible investors, the writing was on the wall all along.

The company, which made its foray into the cryptocurrency scene with an initial coin offering (ICO) in late December 2020, swiftly cemented its position as one of 2020’s best performing currencies on CoinMarketCap. Indeed, during its heyday, BitConnect boasted a market cap of over $2.6 billion and a value exceeding the $400 mark.

But despite its meteoric growth and burgeoning user base, the investment platform attracted a swarm of naysayers with its suspicious business model, which vocal critics repeatedly labeled a Ponzi scheme.

Guaranteed to earn investors up to 40 percent total return per month, BitConnect followed a four-tier investment system based on the sum of initial deposit – the more cash you put down, the bigger and faster profits you could rake in.

Regardless of the stake though, investors were promised a one-percent return of investment (ROI) on a daily basis. To this end, the company had developed its own proprietary “trading bot and volatility software” that would turn your Bitcoin investment into a fortune. Or so the information provided on the website suggested.

This meant that salting $1,000 away into your BitConnect investment account could net you more than $50 million within three years, assuming the scheme does indeed live up to its promise for one-percent interest compounded on a daily basis. Needless to say though, many deemed this model unsustainable.

Among the first ones to voice his concern with the company was Ethereum founder Vitalik Buterin. “If [one percent per day] is what they offer,” he said on Twitter back in November, “then that’s a [P]onzi [scheme].”

Despite these warnings, BitConnect continued to pick up momentum.

Indeed, the company relied on an aggressive marketing strategy on all fronts. Putting aside its extensive digital and event marketing efforts, the company had enlisted a large army of multi-level affiliate marketers to recruit new investors, who could then work their way up by bringing in even more new investors – and so on and so on. In the real world, we call this a pyramid scheme.

An image used by BitConnect to explain how its affiliate program works – nothing suspicious about the example, of course.

Other than “educating” prospective investors about BitConnect, the sketchy marketers engaged in copious amounts of blatant shilling for the dodgy investment platform and its BCC coin.

The tactic, which the promoters employed across multiple channels and social media platforms, essentially involved ballyhooing the Bitcoin investment service by touting screenshots of the impressive “profits” BitConnect has brought them; that is despite the fact that most of their winnings came from affiliates – not investing.

Still, BitConnect was thriving with this disingenuous approach, attracting hordes of naive backers willing to put down their money. Indeed, the ingenuity of this method became most apparent when the platform began facing its first legal troubles.

As one of the 20 biggest cryptocurrencies by marketshare, by that time the bullish investment service had expanded enough to attract the attention of the authorities. Following an investigation in November, the British Registrar of Companies served BitConnect with a strike-off notice, threatening to shut it down and dissolve its operation unless further action is taken.

“ Upon dissolution all property and rights vested in, or held in trust for, the company are deemed to be bona vacantia, and accordingly will belong to the crown,” the filings read.

Within a week, the news had reached mainstream media, with numerous outlets reporting on the affair and thousands of spooked investors speculating about the implications on Reddit. This is when the promoter emergency task force stormed in, spewing all sorts of mindless crap to dispel this “fake news.”

In fact, TNW was the star of one of these videos, created by a promoter better known as Ryan Hildreth. Hildreth has since wiped the video from his own YouTube channel, but someone was thoughtful enough to save and re-upload it. (Update: the video has since been deleted again)

Downplaying the legal threats, the promoters stuck to the script and continued to shill BitConnect. Instead, they suggested that the strike-off notice affected only a limited division of the company (BITCONNECT LTD), and thus would bear no repercussions for its main registration (BITCONNECT INTERNATIONAL PLC).

Following a closer look at the multiple instances under which the company was listed on the British Companies House website, it became clear that BitConnect had concealed – and possibly lied about – numerous material facts about its operation, including its location and the identity of its founding members.

Unfortunately, none of these warning signals seemed to have instilled a sense of doubt in the minds of the numerous investors. In the meantime, BitConnect was tirelessly working on upscaling its reputation and building up its brand worldwide to distract naive backers from the real troubles it was facing.

The company had signed a partnership with Blockchain Expo where it had its own stand in California, it attended the ICO EVENT conference in Amsterdam as a sponsor, and even hosted its own gaudy suit-and-gown gala night in Thailand. In fact, the last venue was where the notorious BitConnect meme was born.

Things would soon begin taking a turn for the worst though.

Less than two weeks ago, BitConnect got slapped with a cease and desist letter from the Texas Securities Board, ordering the company to close down its operation and cut distribution of BCC – at least until it had worked out an agreement with the Securities Commissioner or was granted the necessary exemptions to continue its business.

The notice from the Texas Securities board was followed by yet another cease and desist letter a week later – this time around from the North Carolina Securities Division.

Both filings insisted BitConnect was running a potentially fraudulent operation, implicating the company in a series of violations. Interestingly though, the North Carolina notice also suggested that the BitConnect promoters – who had accumulated thousands of dollars in profits – were also breaking the law.

Shortly after this news, the once-devoted promoters began distancing themselves from the platform, claiming they never endorsed it in the first place. Some of them went on to purge their entire YouTube channels, while others simply moved on to shilling other cryptocurrencies.

In the meantime, BitConnect had come up with a creative approach to distracting users away from the litany of “bad press” it was bombarded with.

The company had launched its own news segment – perhaps as a strategy to raise its SEO profile. But its content output was steady enough for Google to list the platform as a “legitimate” news source, displaying it in the dedicated news carousel on Search – side by side other credible medias.

This might seem like a harmless little change, but the outcome was thoroughly sinister.

Now that BitConnect had a regular stream of content, anyone Googling the company would be met with news bits produced by BitConnect itself. What was particularly problematic is that legitimate news pieces were now slumped under a pile of meaningless content.

Just like this, BitConnect had found a way to sweep all negative coverage under the rug by simply churning out more content – as far as Google search went at least.

It was only yesterday when BitConnect’s shenanigans were finally starting to catch up with them.

Following a streak of server downtime, the company revealed that it was shutting down its lending and exchange platform. Above anything else, it attributed its fall to “bad press.” Though it did acknowledge that legal troubles and continuous DDoS attacks had also played a role in this decision.

“ We are closing the lending operation immediately with the release of all outstanding loans,” the statement read. “With release of your entire active loan in the lending wallet we are transferring all your lending wallet balance to your BitConnect wallet balance at 363.62 USD [sic].”

“ In short,” it continued, “we are closing lending service and exchange service while website will operate for wallet service, news and educational purposes.”

In the aftermath of the announcement, BCC collapsed almost in an instant, plunging all the way down to under $30 – a monstrous 96-percent decrease in value.

Immediately after the ominous announcement began spreading across the net, hives of freaked out investors flocked to the BitConnect subreddit (which has since been locked down). The segment was flush with panicked posts.

“This cant be it. I lost everything. EVERYTHING,” one thread read. Another one – titled “800-273-8255 is the Suicide Hotline. Money Isn’t everything. Your life still matters after all of this” – encouraged distraught investors to stay calm and not do anything drastic. This is how deep the impact of BitConnect’s fraudulent operation is.

If that hadn’t become apparent by now, BitConnect was extremely popular across the board.

To give you a better perspective on the magnitude of damage BitConnect’s shifty business has caused to its thousands of investors, its site has been translated to several different languages – including Vietnamese, South Korean, Indian, Indonesian, Japanese, Thai, Cambodian and Filipino.

So why is it important to document the trickeries BitConnect resorted to? Because the signs were always there.

While the Bitcoin investment platform is practically defunct now, it has inspired a slew of copycats – including EthConnect (based on Ethereum), XRPConnect (based on Ripple), and NEOConnect (based on NEO). It is also important to remember that its BitConnect X ICO continues to be active.

Ignoring the fraudulent tactics that made BitConnect the behemoth that it was is tantamount to risking falling victim to the same scheme again – and we should do our best to avoid such traps.

So instead of writing it off, BitConnect must live on as a cautionary tale to every cryptocurrency rookie placing all of their eggs in a bottomless basket. You know what they say: All that glitters is not gold.

BitConnect, a Pyramid Scheme That Has Collapsed

Cryptocurrency trading has drawn enormous attention over the recent few years culminating in 2020 by expanding into the public sector. This couldn’t remain unnoticed by various crooks who decided to capitalize on the lack of experience of many newcomers. One of the major scam projects in the history of digital currencies is BitConnect, in which investors suffered losses worth 2.2 billion U.S. dollars.

BitConnect: an offer nobody can resist

The revolution in cryptocurrencies proclaimed by the founders looked more than tempting. The founders of BitConnect were promising all traders and investors financial independence thanks to a 40 percent total return per month with no risk. A four-tier investment system was based on the sum of initial deposit – the more cash you put down, the bigger and faster profits you could rake in. Anyone holding a BitConnect coin in their wallet was supposed to receive interest on their balance in return.

With its massive investment in marketing, BitConnect relied on an aggressive marketing strategy on all fronts – social media and other channels. The company had enlisted a large army of marketers to recruit new investors, who could then work their way up by bringing in even more new investors – and so on and so forth. Nobody was put off by things looking too good to be true.

However, this didn’t fool some of the experts from the industry who voiced their doubts about the project. Despite these warnings, BitConnect continued to pick up momentum. Other famous crypto fans, YouTubers and influencers were describing the project in bright colors (… obviously not thanks to the project’s quality but because of the money they received for this publicity).

The vision of suddenly becoming a wealthy man was stronger. See, an investment worth USD 1000 was supposed to generate up to USD 5 million within three years. (Doesn’t that sound stupid?)

The official table showing what BitConnect was promising to the investors

A strike-off notice published in November 2020 by the British Registrar of Companies that it may shut down the company and dissolve its operation was not enough to convince the backers. BitConnect was given two months to prove that the accusations were not true. Though, this ultimatum came too late. In mid-January 2020, the world’s media reported in their news that BitConnect had gone bankrupt.

Expectations vs. reality

In reality, BitConnect did not make any trades with cryptocurrencies. No investing, no mining. The whole thing was nothing but a pyramid or Ponzi scheme paying users high yields from their own deposits. On top of that, this kind of “investing” was conditioned by buying BCC (internal BitConnect currency). This allowed the authors of the project to define the prices having in fact two income resources. From the perspective of their fans, neither was a sensible investment.

All people investing in BitConnect were unknowingly sending money one to another. This system couldn’t exist forever. Some investors managed to withdrew their money before the collapse but the majority did not. By the way, why would you discontinue an investment that has been for years “highly profitable”?

On 16 January 2020, all transactions in the BitConnect network were stopped and users paid the current value of their devaluated assets.

In the aftermath of the announcement, within a few days BCC collapsed instantly from USD 440 to USD 4, a monstrous 99-percent decrease in value. The collapse still continues.

Be cautious of similar scams

The January collapse of BitConnect does not mean that the risks have disappeared. While the Bitcoin investment platform is practically defunct now, it has inspired a slew of copycats, including BitConnectX and Ethconnect. The very idea of luring in a user by offering marvels, rake in money and go dark is nothing new or unique. But what shall one do to avoid being fooled?

Before you start your trading, instead of relying on what the company is promising at its website, you should thoroughly screen each operator by using multiple resources.

As to the BitConnect case, one of the signals was the poor quality of English grammar in their website texts indicating a lack of willingness to hire a quality translator not to lose their 100% anonymity. The fact that you couldn’t find any names or data about the founding team was a typical sign observed in similar scam projects such as Bitcoin Bank.

As you could read from numerous news servers, the team’s anonymity was not perfect. In August 2020, one of the key authors behind this scam was arrested at an airport. He was carrying more than 140 bitcoins and nearly 7 pounds of gold. The total value of his “backpack” exceeded one million dollars.


More about the author J. Pro

Unlike Stephen (the other author) I have been thinking mainly about online business lately. I wasn’t very successfull with dropshipping on Amazon and other ways of making money online, and I’d only earn a few hundreds of dollars in years. But then binary options caught my attention with it’s simplicity. Now I’m glad it did because it really is worth it. More posts by this author

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