I wouldn’t blame you, even after doing some of your own research, if you have no idea what BitConnect is. In this post, I’m going to delve in and provide some clarity about what BitConnect is all about (as impartially as possible). I’ll then outline afterwards why I have not invested anything into the BitConnect platform (which isn’t impartial, at all).
BitConnect CLOSED its lending platform on the 16th January 2017. Check out my recent post if you’d like to read about what happened, why it happened, and the aftermath.
The Basics
BitConnect (BCC) is a cryptocurrency which launched on 15th November 2016 which is owned and operated by Ken Fitzsimmons in the UK. This is likely someone who just stands in, providing anonymity, for the real people behind the company. Recently (September 2017) other company entities have appeared in UK company records.
New BitConnect entities have recently appeared on Company House UK.
It has the 12th largest market capitalisation of all cryptocurrencies which are currently available, standing at $938,943,132 ($136.22 per coin) at the time of writing.
If you cut through the bullshit, BitConnect is all about lending your money out to a trading bot which takes advantage of Bitcoin’s volatility to generate returns of between 0.5% and 1% daily on most days (0.89%, on average, over the last 6 months). To put this in perspective, 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% – which equates to £2389.76 in profit – once your lock-in period of 239 days ended. Holy fuck. Who wouldn’t be drawn in by that?
Interest is 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 These returns are immediately accessible and can be re-invested or withdrawn (0.005 BTC minimum withdrawal).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.
ROI of 236.61%!
The roadmap ends in November 2017. In October (this month), we should expect the smart card and music video album (what?) launch.
There appears to be a very small (looks unofficial) Reddit community here. They have a Twitter feed here, but they don’t seem to use it to engage with the community – just for putting out general cryptocurrency news.
“Should I invest into BitConnect?”
Despite opening an account to understand the BitConnect platform more, I’ve invested absolutely nothing into it. Why? In my opinion, there are red flags everywhere which are screaming to stay away. Things such as:
- There’s no proof (e.g., raw trade history) that the trading bot, which BitConnect is based around, actually exists.
- It promises guaranteed returns on investment.
- Funds invested are tied up for between 120 and 299 days.
- The growth of platform appears to be driven by their affiliate program.
- Website and advertising (e.g., video) are ambiguous.
- Grammar on their website is bad. Hiring someone to check the website for errors really wouldn’t cost that much.
I’m not alone in seeing these red flags. Some well-known and decent YouTubers who publish videos regarding cryptocurrency have expressed their concerns too. I’ve summarised their main points (and linked to the videos) at the bottom of this post. In any case, I’ll go through three of these points in a little more detail.
No Proof that Trading Bot Exists
A recurrent concern across the YouTube videos linked below is that no proof that this trading bot actually exists has been published. Some limited amount of trade history (showing buy and sell orders) would be enough to dismiss a lot of this scepticism. The closest thing I could find – but isn’t good enough – is the ‘Lending Profit Chart’ accessible on the BitConnect homepage or here. While this shows the returns generated by the trading bot each day, it doesn’t prove that it’s actually doing it.
Ask yourself: why wouldn’t you release a limited amount of trading data? If they published such data, it would be fantastic marketing and stop all the naysayers in their tracks. What reason could they have for not publishing it?
Investment Tie-up
Depending on how much you invest, your initial funds are 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).
Consider this:
- Why is this necessary?
- Wouldn’t it surely be a better endorsement of the platform if the lock-in period was lower?
- Why are capital release periods (and extra interest) tied to lending amount?
Some possible answers to these queries might be:
- It’s necessary for a lock-in period to exist so that there is enough capital from new investors to subsidise the payments of existing investors who have reached the end of the lock-in period.
- It would be a better endorsement of the platform if the lock-in period was lower. This would likely give existing investors more confidence (possibly leading to higher investments) and encourage trial by new investors (who might have some doubts/concerns).
- To push people into higher lending categories. Their tiered system lures you into investing more with guaranteed daily returns (in addition to the variable interest) and lower lock-in periods (which, likely, lowers perceived risk). Those who
Affiliate Program
Check out the picture below. This was taken from their website.
What does that look like to you? A pyramid? How strange!
Anyway, whenever someone uses a referral link which you’ve provided them, you earn 7% of whatever they lend to BitConnect. And if those people refer someone who then lends on the platform, you earn commission through them (but slightly less). This goes on and on (as you can see above).
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 is lucrative enough that it could be encouraging negative behaviour. For instance:
- Videos on YouTube advertising the returns generated through BitConnect might become one-sided. They might ignore or dismiss information which might make their viewers sceptical of the platform (and thus, reduce referrals).
- As the reward is percentage based, it might also incentivise content creators to advocate higher investment.
In short, ask yourself this: what behaviour does this program encourage? Where do the motivations of recommendations lie? Is that a good thing?
“But look at all this money people are making!”
No doubt some people have made, and will continue to make, a lot of money through BitConnect. However, it’s false to imply that the success of the platform until now absolves it of its design and lack of transparency. Just because someone else has cashed out of this platform successfully, does not mean it isn’t a scheme. In the Boxmining video, he says that “you can’t prove it’s a pyramid scheme until it falls apart”. In other words, this could be successful for some time to come and we won’t be able to prove that it is a scam until it bursts into flames. However, while we can’t prove this is a scheme, we can point to some worrying signs in the platform’s design that suggests it is.
Perhaps BitConnect is set up to work 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 operates directly and indirectly.
In essence, as long as this system can continue to subsidise pay-outs to existing users through increased adoption, there’s no reason that BitConnect would fall apart. However, if either (or a combination of)
- A larger amount of capital exits circulation (via withdrawals).
- A lower amount of capital enters circulation from new or existing users.
Then it would blow up – very quickly.
Before that happens though, you might be able to make a lot of money. But the reality of how you are making money through BitConnect is probably different than is advertised.
“Should I invest anything into BitConnect?”
I’m not a financial advisor and I don’t pretend to be. I’ve laid out the facts and my concerns regarding BitConnect. Personally, I am investing nothing into this and will not be recommending anyone to it. Unless you know something I don’t (and if you do, please share!), I would recommend you stay away too.
Why did you bother writing this?
I like cryptocurrency and the blockchain. BitConnect’s presence in the top 15 (by market capitalisation) of all cryptocurrencies is worrying, as this lends it credibility – where, as I hope I’ve shown – it doesn’t deserve. I would rather have written something else entirely. However, all the positive reviews of BitConnect motivated me to add my voice to the naysayers and maybe get other people asking the same questions I have.
Want more?
- Check out my brief follow-up post on BitConnect here.
- An overview of some BitConnect copycats (now outdated).
BitConnect CLOSED its lending platform on the 16th January 2017. Check out my recent post if you’d like to read about what happened, why it happened, and the aftermath.
YouTube Reviews of BitConnect
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.
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 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.
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.
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…
Thanks for reading/commenting.
I was surprised when I looked into how many BitConnect clones have recently emerged – and are raising lots of money. Written outlines of some in a recent post (https://quickpenguin.net/bitconnect-copycats).
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.
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.
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https://beta.companieshouse.gov.uk/company/10948031
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.
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.
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,
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.
Hey Hugh,
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.
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,
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.
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.
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.
Hey Warlock,
The value has decreased because they’ve now shut down their service. Some details here.
Best regards,
Lol @ the BitConnect trolls above shilling for what is obviously a Ponzi scheme.