BitConnect Scam: Crypto’s Biggest Ponzi Scheme (2020)

On the 16th January 2018, the BitConnect scam collapsed.

They announced that they were shutting down their lending and exchange platform on the 21st January 2018. Following this news, BitConnect’s coin value nosedived from a daily open of $255.91 to $19.28 by the end of the day. That’s an 87% drop.

And by the end of the year, BitConnect was no longer available to trade on any cryptocurrency exchange. At the height of BitConnect’s value, it had a market capitalization value of approximately $2.6 billion (over $430 per coin). It was now worthless.

But what was BitConnect? Was it obvious that it was a scam? What led to its collapse?

What Was BitConnect?

BitConnect (BCC) was a cryptocurrency which launched on 15th November 2016 which was owned and operated by Ken Fitzsimmons in the UK. This was likely someone who just stood in, providing anonymity, for the real people behind the company. In September 2017, more entities have appeared in Company House UK records.

New BitConnect entities have recently appeared on Company House UK.

If you cut through the bullshit, BitConnect claimed that they could generate daily returns of between 0.5% and 1% by using their trading bot to take advantage of Bitcoin’s (BTC) volatility. In October 2017, they reported an average daily return of 0.89% over the previous 6 months. This claim was not supported by any evidence whatsoever.

To put this in perspective, they claimed that if you invested $1010 in BitConnect and had a 0.99% (including the .1% bonus) daily interest rate, you’d have a return of 236.61%. This would have equated to £2389.76 in profit once your lock-in period of 239 days ended.

ROI of 236.61%!

Interest was accrued daily and deposited into your BitConnect account every 24 hours. These returns are immediately accessible and can be re-invested or withdrawn (0.005 BTC minimum withdrawal). This means that your accrued interest payments should cover your initial capital investment after about 100 days – regardless of how much you invest.

Prior to BitConnect’s collapse, they announced that they were releasing a BitConnect debit card which could be loaded with BitConnect and Bitcoin. They also released two BitConnect themed music videos (below is one) and had planned to release a full album.

Scam Warning Signs

Despite opening an account to understand the BitConnect platform, I invested absolutely nothing into it. There were red flags everywhere which were screaming to stay away.

This included:

  • There was no proof (e.g. raw trade history) that the trading bot actually existed.
  • It promised guaranteed returns on investment (nearly 1% daily).
  • Anything you invested was tied up for between 120 and 299 days.
  • Their platform’s growth was driven by a lucrative affiliate program.
  • The website and advertising were ambiguous, with incorrect spellings and bad grammar too.
  • BitConnect promoters were linked with MMM (a Ponzi scheme) in this Reddit post.

I wasn’t alone in seeing these red flags. Some popular cryptocurrency YouTubers had expressed their concerns too. Expand the sections below to go through these.

BitConnect Review by DataDash

BITCONNECT | An honest review

Review by DataDash. Makes observations that:

  • The website isn’t clear about the purpose of BitConnect, or how it works.
  • Promotional video (see here) uses premade animation software (i.e., they haven’t bothered to hire animation artists to promote their coin).
  • No proof that the trading bot actually exists (i.e., BitConnect have never released the trade history of the trading bot).
  • BitConnect coin is being used as an asset, not a currency.
  • It promises guaranteed income.

BitConnect Review by BoxMining

Is Bitconnect a Scam?

Review by BoxMining. Makes observations that:

  • Basic proposal of BitConnect is that you lend your Bitcoin and get “massive” returns each year.
  • Even after research, admits that he still doesn’t understand BitConnect.
    • Who is the money being lent to?
    • There’s no evidence of this trading bot
  • Once lent out, the money is locked up for a long time (see here).
  • Exposing yourself to a lot of (unknown) risk.
  • “you can’t prove it’s a pyramid scheme until it falls apart”

BitConnect Review by David Hay

Bitconnect scam alert! Is this 800 million dollar cryptocurrency a ponzi scheme?

David Hay starts his review of BitConnect by offering a $1000 bounty to anyone that can prove that the trading bot is doing what it says its doing. Makes observations that:

  • After doing more research, has become increasingly worried about it.
  • USP: a trading bot that pays returns (variable) each day – which compounds.
  • If they do have this trading bot, there are better routes for raising capital than establishing a cryptocurrency.
  • Basic proof that this trading bot works as they claim would be enough to displace scepticism.
  • Strongest source of growth is through the affiliate program.
  • Tie up your money for a long time.

In any case, I’ll go through three of these points in a little more detail below.

No Proof that BitConnect Trading Bot Existed

A recurrent concern I encountered in my research before BitConnect’s collapse was that no evidence that this trading bot actually existed was ever published.

Some limited amount of trade history (showing buy and sell orders) would have been enough to dismiss a lot of this scepticism. The closest thing I found (which wasn’t good enough) was the ‘Lending Profit Chart’. While this showed the daily returns generated by the trading bot, it didn’t prove that it was actually generating these returns.

If you had it, why wouldn’t you release a limited amount of trading data? It would have been fantastic marketing and stopped all the naysayers in their tracks. What reason could they have had for not publishing it?

It gets worse.

BCCponzi sourced a screenshot in October 2017 from an anonymous source (shown below) who infiltrated a private Facebook group for top BitConnect promoters. In this conversation, Craig Grant (a top BitConnect promoter in the US) admits that the trading bot is “just a story” and that (whoever he was talking to) shouldn’t “get lost with imaginary bots”.

Investment Tie-up

Depending on how much you invested, your initial funds were tied up for between 120 to 299 days. By itself, a lock-in period is not my concern. Instead, it’s that your initial investment is locked up for at least 120 days (and that’s only if you invest $10,010 or more).

Why was a lock-in period necessary?

It was necessary for a lock-in period to exist so that there was enough capital from new investors to subsidise the payments of existing investors who have reached the end of the lock-in period.

Wouldn’t it surely have been a better endorsement of the platform if the lock-in period was lower?

It would have been a better endorsement of the platform if the lock-in period was lower. This would likely have given existing investors more confidence (possibly leading to higher investments) and encouraged more new investors to try out their system (who might have had some doubts/concerns).

Why were capital release periods (and extra interest) tied to lending amount?

To push people into higher lending categories. Their tiered system lured people into investing more with guaranteed daily returns (in addition to the variable interest) and lower lock-in periods (which, likely, lowers perceived risk).

Affiliate Program

Whenever someone used a referral link which you provided them, you earned 7% of whatever they invested into BitConnect. And if those people referred someone who then lends on the platform, you earned commission through them – but slightly less. As you can see below, this goes on and on.

Affiliate programs, by themselves, aren’t a bad thing. They incentivise existing users to spread information about products/services and can be a cheap and effective customer acquisition method. PayPal had a long-running and successful affiliate program to increase new user uptake. Coinbase currently has an affiliate program too.

However, the model employed by BitConnect was lucrative enough that it encouraged negative behaviour.

For instance:

  • Videos from many cryptocurrency YouTubers were a one-sided promotion of BitConnect and the returns that were possible. They ignored or dismissed information which might have made their audience sceptical (and thus, reduced referrals).
  • As affiliate revenue is percentage-based, it incentivised content creators to advocate bigger investments and, as above, ignore anything suspicious or negative about BitConnect.

To put into perspective how lucrative this affiliate program was, this tweet highlights that one promoter had earned $900,000 from referring people to BitConnect.

How Did BitConnect Really Work?

When I originally wrote this post in October 2017, I thought that the various warnings signs indicated that BitConnect worked something like this:

  • Attract initial investors with the lure of high daily returns.
  • Subsidise the withdrawals of capital/returns (i.e. realised gains) of initial investors through:
    • Themselves (i.e. initial working capital).
    • Existing investors who have not withdrawn capital or returns (i.e. re-invested).
    • New investors who are still locked-in.
  •  Encourage adoption of the platform by new users via:
    • Proof that the platform ‘works’ (through users who have withdrawn capital/returns).
    • A percentage-based referral system, which encourages word of mouth.

In other words? Exactly like a Ponzi scheme. It would keep going for as long as BitConnect was able to subsidise payouts to existing investors through increased adoption.

What Happened to BitConnect?

Here’s why BitConnect announced that they were closing their lending and exchange platform on 16th January 2018.

None of these reasons should substantiate closing their platform:

  • Bad Press: This only impacts investments (from new and existing users) in their lending platform, not the performance of their trading bot.
  • Cease & Desist Letters: BitConnect isn’t even based in the USA. As outlined earlier, BitConnect was a private limited company in the UK.
  • DDOS Attacks: We don’t know the severity of the attacks BitConnect were facing, but there are steps they could have taken to protect themselves and combat the attacks.

When they issued their announcement on 16th January 2018, here’s what happened:

  • Active loans were cancelled, with USD funds (principal and interest) returned in full.
  • All USD wallet funds were automatically converted to BitConnect (at 15-day average exchange rate, which was $363.62).
  • You could immediately withdraw BCC. Alternatively, you could exchange it for Bitcoin on their trading platform and withdraw that instead.

Because the value of BitConnect is tied to the success of their lending platform, it was rendered completely worthless. Anyone who had BitConnect wanted to immediately exchange it for Bitcoin.

But there wasn’t anyone looking to buy BitConnect. Everyone knew it was worthless. Subsequently, we saw the price tumble about 87%.

BitConnect / Bitcoin price action on 16th January 2018.

To put this in perspective, a user who was returned $1000 worth of BitConnect would only have been able to exchange their coins for about $130 in Bitcoin.

Community Fallout

Sometime after Bitconnect’s announcement, /r/BitConnect temporarily went private. It has since been made public again, but submissions are no longer permitted. Given how many people were impacted by this Ponzi scheme, one of the top threads was a suicide hotline number.

There’s another subreddit over at /r/BCC (which does allow submissions) which is serving as a forum for those impacted by BitConnect’s exit, but it’s just more of the same.

Most people who ever promoted BitConnect looked to distance themselves from it by taking down BitConnect-related videos, disappearing, or pivoting to promote some other scam coin. You can find a list of YouTubers who have previously, or continue to, advocate suspected scams in this Reddit thread.

BitConnect X

BitConnect released an update on the 17th January 2018 where they extended a poisoned olive branch to the people they’d fucked over. For the next 10 days, they were allowing you to participate in the BitConnect X ICO at a rate of $150 per BitConnect (if you’re outside the USA).

While this represented a substantial premium over the market price at the time, it was just another scam. BitConnect X wanted to raise $500 million. Thankfully, they were not successful and this never went anywhere.

BitConnect Copycats

BitConnect is dead, but the success of BitConnect prompted numerous copycats (i.e. clones).

There’s a long list of crypto Ponzi and pyramid schemes that someone put together on Reddit back in 2017. Expand the sections below to learn about just a few of the more ridiculous ones I researched a few years ago.

HextraCoin

A straight-up clone of BitConnect, with a lending system which offered up to 48% returns per month and an affiliate program which gave people a strong incentive to recommend the service (you receive 8% whenever someone you directly refer lends on the platform).

CredenceCoin

The below is taken from their whitepaper. I wish I was joking.

Sure – definitely “not a Ponzi”.

Designed just like BitConnect, this offered returns of up to 1% per day (plus more if you ‘invest’ more). Offered a referral system, with an ‘elite tier’ for YouTube promoters.

EthConnect

EthConnect claimed you could get returns of up to 52% per month and have a juicy referral system.

As shown below, they’re not even shy about mentioning that they’re a Ponzi scheme!

Why did you bother writing this?

In 2017, BitConnect’s presence in the top 15 (by market capitalisation) of all cryptocurrencies was worrying, as it lent it credibility – where, as I hope I’ve shown – it didn’t deserve.

When I first published this in October 2017, there was an overwhelming number of positive reviews of BitConnect. I just wanted to add my voice to the naysayers and maybe get other people asking the same questions I was.

I didn’t doubt that BitConnect was a scam, but a part of me hoped I was wrong because of how much it would financially destroy those who had put their money into it.

Have Something to Add?

Did I miss something? Or did I make a mistake?

Let me know in the comments below.

Further Reading

16 thoughts on “BitConnect Scam: Crypto’s Biggest Ponzi Scheme (2020)”

  1. I believe there are some valid points for the lack of information BitConnect purposely has not given. I’m far from a lazy person I’ve started many failed businesses and compared to money spent and most lost BitConnect has not let me down. Now I give it to you the website wasn’t the best and the grammar was suspect but still not bad coming from a non-speaking English country. If I could make millions with a staff of 20 I would keep it that way and outsource the rest. The cartoon program they used, you have to put some work into making it work I used the same program myself it’s not easy and it saves tons of money. If in fact, they meant to exit, I feel they would have done it already especially after the cease order in Texas, no they didn’t run they complied with Texas. The reality is they didn’t have to, they are an internet based company with no ties to the US. So wouldn’t you think they would have ran by now? Just stating from my experience using the platform, as with anything in this Wild Wild West of Crypto don’t invest any more than you can live without. BitConnect is still more trustworthy the banks we used every day. They stay in the news from different forms of fraud and unlawful overcharging yet people still keep their money there. So I say pick your poison I’ll choose the one that’s gonna enable me to quit my job and possibly rich.

    Reply
    • I certainly have no problem with using a cartoon program, in fact that is a wise use of money. I just find affiliate use to increase income highly questionable, because it is not natural growth. Using an underlying crypto to build their system on is quite clever, because you can create more coins. However at some point, you will see the underlying coin drop drastically in price. There were several people in my crypto club involved with BCC and I strongly suggested that they diversified their profits out of BCC and to expect it to crash hard at some point.

      I also notice that even though BCC may be going up in value, it has been increasing in value less than just leaving your funds in BTC. Also alt-coins often do terrible during market crashes. For instance, BCC is down over 90% in the last couple days, while BTC is only down about 30%. I expect BCC to drop below a $1 this year. I am basing that on other crypto coins similar in the past to BCC, for instance PayCoin.

      Reply
  2. You people do not fully understand how this investment platform works. If you want to make money off of the coin then stake. The advantage with lending is that you will get paid if the price of bitcoin goes up or down. It is the same when you buy stock. You are either long or short stock.

    There is also a big advantage to being paid out in us dollars. If you invest money when the price of a bitconnect coin is 100 dollars and 6 months later the coin is 50 dollars you would have lost money. If you are paid interest in us dollars you can exchange the US dollars back into bitconnect coins and then into bitcoins. You are protected from price falls in the bitconnect coin.

    Reply
  3. Nice writeup.

    Another thing of note is how the payouts are structured:

    USD > Bitconnect > Bitcoin

    So you must manually convert the USD payout, which gives them two addition layers of storage. They are probably counting on lazy people keeping their balances in USD or Bitconnect, which can be used for future payouts.

    Just for discussion, if the trading bot does exist, one reason not to disclose actual performance is that they are sandbagging gains. For example, say the bot makes 3% in a day. They could just pay out 0.8% and save the rest for a day when the bot has a losing day.

    The more likely explanation of course, is that there is no trading bot and new investor funds get tied up in the lockup period and stairstep scheme above, which pays existing investors.

    Reply
    • Hey Hugh,

      Another thing of note is how the payouts are structured:

      USD > Bitconnect > Bitcoin

      This is interesting, as the interest payments then accrue on the USD – not the BCC or BTC. This means investors miss out on BTC’s (and BCC’s) price movements, which might outperform the returns from BCC investment. Given how the market has been performing, I suspect that investors in BCC might find that they’re returned less (or near the same) BTC at the end of their lock-in period. I should do the maths at some point, as I could be wrong.

      Just for discussion, if the trading bot does exist, one reason not to disclose actual performance is that they are sandbagging gains. For example, say the bot makes 3% in a day. They could just pay out 0.8% and save the rest for a day when the bot has a losing day.

      Possibly. However, showing everyone that they’re doing this is preferable to being branded a Ponzi scheme – at least in my eyes. Following your example, I also imagine they could explain the 2.2% extra gains as going towards the development of their offering or marketing efforts.

      Thanks for the comment – interesting stuff!

      Best regards,

      Reply
  4. If you do the math it is real easy to see how Bitconnect can payout the percentages they claim each day. They have you give them your bitcoins and in turn they give you their bitconnect cryptocurrency to lend in their lending platform. They lock up your original bitcoin for roughly 120 to 239 days. While Bitcoin for the last year is averaging 6.49% daily as of this writing Bitconnect has only been paying their members an average of 0.90% daily in their lending platform. As long as bitcoin continues to rise Bitconnect can continue to survive. Is it a scam? Not so much as a clever marketing ploy.

    Reply
    • Hey,

      From what I understand, you don’t lend their BitConnect Coin or lock-up your BTC. You deposit BTC into their platform, which you exchange for their BitConnect Coin and then sell for the $ market rate to ‘invest’. I’ve not personally invested, but this is what I gathered from watching videos of others doing so (i.e., I could be mistaken).

      Where’d you get the BTC daily figures? I’m getting different numbers.

      You’re right though. Instead of taking advantage of BTC’s volatility (which is what they advertise), they could just be holding BTC and paying out with the returns generated from just holding it. That might explain why their trading bot seems to only take advantage of positive price volatility but suffers whenever BTC’s price takes a hit.

      Is it a scam? Not so much as a clever marketing ploy

      If they’re lying about how their business operates, then this is beyond “clever marketing”.

      Thanks for the comment. It was fun to revisit this.

      Best regards,

      Reply
  5. There are a few missed points:
    1) Yes your initial investment is locked up but incontarary to what is written, the profits are not, you can take then out at any time limiting the risk to about 120 days for 100% ROI.
    2) While there is no proof that a bot does not exist it does not matter, they make enough money on just the valuation of both bitconnect coin and bitconnect and of the exchange fees to pay out all interests.
    3) They are protected from large withdrawals trough paying out in their own coin, if someone does try to withdraw a lot of BCC they have to exchange it to BTC and this will take a lot of time because the exchange only lets you put in limit orders automatically spreading the selling off over a longer time.

    Does this mean they are honest? absolutely not but it does mean they are not likely to fail and they make more money by keeping open then running off, afterall the BCC they hold will instantly become worthless if they try to exit.

    Reply
    • Hey Andre,

      1) Thanks for correcting me – it’s much appreciated. I’ll make an edit shortly to reflect this.
      2) If no trading bot exists, then the valuation of BitConnect is based on a lie. It might keep paying out, but how it’s generating that interest is probably different than advertised. That possibility should be a giant red flag for investors.
      3) This doesn’t protect them from large withdrawals. Unless I’ve misunderstood, BCC sellers can just fill buy orders en masse – as long as they exist.

      I wouldn’t personally reward any dishonest project with my funds. They might eventually not have a choice besides just disappearing, as being unable to pay out investors would be even worse for their bottom-line. Of course, they are incentivised to try and stop that from happening – which is probably why they have such a lucrative referral scheme, as well as regional development fund (i.e., marketing fund). However, just because whoever is running BitConnect is incentivised in this way, it does not mean BitConnect’s collapse is not a possibility.

      Reply
  6. I Like your way of putting it.

    New investors seek the easiest way to invest. that’s why we’ve seen all these scam sites emerging in recent year…

    Reply
  7. I really like this post. There are a lot of things people new to cryptocurrency do not understand and can therefore get caught up in a scam like this.

    Reply

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