Understanding BitConnect (BCC): Bitcoin’s Biggest Blemish into Fooling Crypto Investors

Fooling Investors Is Not Hard, BitConnect’s Story Demonstrates It

Any upcoming market with a lucrative return is a breeding ground for scams. When it comes to crypto, the esoteric nature of it magnifies the possibilities of fraud.

Take BitConnect as an example. They executed a classic Ponzi scheme and misappropriating thousands of investors. What is most notable about the BitConnect scheme is that it was so clearly and obviously dishonest, exposed at the outset by many within the community.

Let's Take a Look Back at the Story of BitConnect

BitConnect was launched in December 2016 using an ICO. It was extremely successful all the way to the start of 2018, with all-time highs approaching USD 463 and a market capitalization of over USD 2.7 Billion. It was one of 2017’s best-performing cryptos. Despite, its investment model and the axiom upon which it actually created substance was highly dubious.

Investors were promised 40% returns per month, based on whatever the initial deposit happened to be. The larger the deposit, the bigger and faster the return. Their website claimed that a USD 1,000 investment would result in a USD 50 Million profit in 3 years. BitConnect promised a 1% return compounded daily, which amounts to around 3,800% per year.

Ethereum founder Vitalik Buterin said it way back in November 2017:


Despite this early warning from Vitalik and many others in the community, the scheme found momentum. BitConnect purportedly had an exclusive piece of software that enabled them to buy BTC at the highs and sell at its lows, without providing any details about how the algorithm operated. Additionally, BitConnect at one point reached a market capitalization of nearly USD 3 Billion. This means that buying and selling the asset would cause investment slippage, as the numbers would affect the price of the asset itself.

The firm used the classic multi-level marketing approach. People who introduced more people got a higher percentage of profits, in what is known as a pyramid scheme. These marketers would show snapshots of their profits on social media channels, without disclosing that their profits actually consisted of money made from referrals and not from any type of proprietary trading model.

So What Led to Their Downfall?

It was January 2018, the house of cards that BitConnect had created started to crumble under its own weight. A YouTube video of a company conference emerged where extremely strange behavior was exhibited by Carlos Matos. The BitConnect company shut down its exchange after receiving cease and desist orders from regulators in Texas and North Carolina, as well as a similar order from UK authorities. They released a statement on their website on January 16th, which said:

“We are closing the lending operation immediately with the release of all outstanding loans. With the release of your entire active loan in the lending wallet, we are transferring all your lending wallet balance to your BitConnect wallet balance at USD 363.62. In short, we are closing lending service and exchange service while BitConnect.co website will operate for wallet service, news and educational purposes.”

The announcement meant that investors could not withdraw funds and the BCC token crashed. The biggest Ponzi scheme in cryptocurrency history had just unfolded. At the start of January the BCC was worth USD 463, and by the end, it was worth less than USD 5. It currently trades under a US dollar. Every member of BitConnect is being sued, as are celebrities and YouTube affiliates who endorsed the product. Regrettably, the damage done is global, extending to investors in India, Vietnam, Thailand, Indonesia, Cambodia, and the Philippines. Many investors lost everything they owned.

What Can We Learn From this Story?

It doesn't really matter the type of environment; there will always be naive investors who need to lose everything before they understand that there is no automated system that can guarantee returns. Any type of scheme that promises a return based on more investors entering the system is a Ponzi scheme, as it is not backed by anything except the investment from the people that buy in initially. Even by cryptocurrency standards, BitConnect was a clear and obvious criminal scheme.

An investor is supposed to look for Whitepaper, description of goods and services, community management, third-party verification, legal documentation and so on. BitConnect offered none of these. And yet, what was clearly and obviously a Ponzi scheme fooled so many people. BitConnect was such a simple and classic Ponzi scheme it is hard to understand how it could have been so successful. Many of the investors were from less affluent regions (Thailand, India, Cambodia) who may not be as familiar with the anatomy of Ponzi schemes.

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