The Writing’s on the Wall for Alleged Cryptocurrency Ponzi Scheme BitConnect

The cryptocurrency Bitconnect (BCC) has rallied from less than $1 in January to reach an all-time high of over $286 in early November 2017. However, Bitconnect’s impressive year-to-date rise in value did not occur without controversy. The cryptocurrency “investment” platform has increasingly come under fire for allegedly being a Ponzi scheme.

This criticism of the Bitconnect platform had made a resurgence in the past week when Ethereum founder Vitalik Buterin tweeted that Bitconnect is a Ponzi scheme if it promises a daily one percent return on investment.

What is BitConnect?

According to its website, Bitconnect “is an open source all in one bitcoin and crypto community platform designed to provide multiple investment opportunities with cryptocurrency education where it is entirely possible to find the independence we all desire, in a community of like-minded, freedom-loving individuals who, like you, are seeking the possibility of income stability in a very unstable world.”

The primary form of income for Bitconnect “investors” is the platform’s supposed lending activities. To partake, a user has to invest bitcoin to receive Bitconnect coins that he or she can then invest for a profit that is earned daily. This involves profiting from a trading bot and the volatility software (the platforms lending operation), according to Bitconnect. Users can also earn new coins through staking their existing holdings using the official BCC wallet as Bitconnect uses a combination of Proof of Work (PoW) and Proof of Stake (PoS), according to the company.

Bitconnect was launched in late 2016 through an ICO and quickly rose to become one of the largest cryptocurrencies in the market. Its founders and operators are largely unknown, which is nothing new in the cryptocurrency space but does not bestow a lot of confidence in what is supposed to be an investment platform.

Why Are Critics Calling BitConnect a Scam?

Vitalik Buterin was not the first person in the bitcoin community to call out BitConnect as a Ponzi scheme. According to its long list of critics, BitConnect is a Ponzi scheme that leverages the popularity of bitcoin and cryptocurrencies to promise impossibly high and regular returns.

By promising up to 40 percent return on investment each month but requiring its “investors” to lock up their capital for a prolonged period of time on the Bitconnect platform, it is not surprising that the wider bitcoin community is more than skeptical about this cryptocurrency project.

Like all MLM-powered cryptocurrency platforms, its members are enthusiastically sharing their positive experiences with BitConnect on platforms such as YouTube, Facebook, and Twitter in the hope to onboard new investors for which they then receive a referral fee.

This is a very common feature among Ponzi schemes, and since BitConnect puts a lot of focus on encouraging its users to refer new investors, it does make it seem like BitConnect may be using funds of Paul to pay Peter, instead of actually generating high returns through cryptocurrency lending.

Bitcoin community watchdog Scambitcoin.com said “Bitconnect may indeed be a Ponzi and if it is that, it is certainly one of the most successful and lasting such schemes in history. It is the type of setup the more one reads into, the more he/she becomes convinced that it is indeed a Ponzi,” and its verdict after a thorough analysis of the platform was that Bitconnect is a scam.

Popular cryptocurrency enthusiast and YouTuber Michael from BoxMining.com agrees with this analysis. He said: “From what I have seen and read about Bitconnect I do not see enough there to justify it as a running business […]” in a video posted in August 2017, while some Reddit users are calling for Bitconnect to be dropped from CoinMarketCap and be reported to Action Fraud in the UK.

CoinCodex – a cryptocurrency price analytics site – has dropped Bitconnect from coin ranking and has announced that it is distancing itself from Bitconnect. The company stated: “Bitconnect […] employs a number of dubious methods in order to operate and promote its business. The business model outlined by the company is economically unsustainable with the current level of returns unable to be validated by any legally known investment system […] As a result, we have taken the decision to distance ourselves from this project, remove it from the top 100 by market cap list and place a warning on Bitconnect page.”

Moreover, on November 4, Bitconnect’s (BCC) market capitalization dropped from over $2 billion to around $600 when Bitconnect announced that it had to recalculate its market capitalization so that it no longer includes Bitconnect coins that are locked up in lending activities and cannot be sold in the market. It is rather odd for a cryptocurrency project to radically change its market capitalization by changing how it calculates its coins in circulation. Given that the majority of BCC trading occurs on Bitconnect’s own exchange, it is difficult to see how much trading actually occurs and how deep order books really are for this coin.

Furthermore, it recently came to light that Bitconnect Limited, the company behind the Bitconnect platform, is being struck off the UK Companies House company registrar and is being dissolved. No information is being provided as to why Companies House intends to dissolve the company but a “notice for compulsory strike-off” is usually issued when company directors have not made compulsory filings such as company accounts. Instead, it seems like two new companies have been founded under the Bitconnect name in September.

Some bitcoin community members have also tried to reach the company and its director at its registered office address, but the company does not seem to be located at the address it has provided to Companies House.

For anyone with money locked up in the Bitconnect platform, the above-mentioned red flags should be major signs of concern as Bitconnect ticks all the boxes of a cryptocurrency Ponzi scheme:

• There is little to no information about its operators. No public statements have been made on the company by its director listed at the UK Companies House.
• The lending platform that allegedly generates around one percent per day is a complete black box, and no one knows who the coins are allegedly being lent to.
• The business encourages referrals with a three-tier affiliate referral system to entice new members to join the scheme.
• Funds have lock-up periods and cannot simply be withdrawn at any time.

Hence, it is no surprise that this cryptocurrency project has received so much criticism in the past few months. Having said that, Bitconnect is currently still paying its “investors,” and if cryptocurrencies continue to rally, it does not look like this scheme will collapse anytime soon. At the end of the day, it cannot be proven that something is a Ponzi scheme until it collapses but once it does, all users will lose their invested funds.