Once beloved, now forsaken, BitConnect was the hottest thing in the market for a good year before the broader market realized this was a wolf in sheep’s clothing. People all over the world fell victim to the exuberance of the scheme, offering a whopping one percent daily compounded yield. BTCManager dives into the nitty-gritty of BitConnect and how it managed to thrive for so long.
The Mother of Crypto Scams
BitConnect, founded in 2016, was allegedly set up by two Indians: Satish Kumbhani and Divyesh Darji. With an all-time high market cap near $3 billion, it has gone down in history as the most high profile crypto swindle to exist.
A most unusual Ponzi, BitConnect allowed investors to lend out the value of their BCC tokens in return for an interest of one percent a day. If you do the math, that’s a yearly return of 37x or an annual lending yield of 3700 percent.
Someone who isn’t well versed with investment and economics might not comprehend just how unsustainable that business model is. Unless of course, people were borrowing BCC at a rate higher than 3700 percent – which they weren’t.
In reality, the “lent out” tokens were given to other lenders who put money into the platform before them; from there on, the pyramid scheme continued to grow and thrive, growing from $.14 per token on January 1, 2017, to $463 on December 29, 2017.
At long last, the perpetually litigation-hungry regulators caught wind of the nefarious activities being conducted by BitConnect. In November 2017, the United Kingdom told BitConnect the company has two months to prove their legitimacy, and in January 2018, the Texas Securities Board, notorious for their disdain of cryptocurrencies, issued a cease and desist against BitConnect.
A mere two weeks later, BitConnect announced it would shut down their operations, and the price of BCC crashed $255 to $19 in a single day. Despite this, it took Indian authorities over a year to find one of the kingpins behind this operation.
And thus, the king of high yield investment scams, the mother of crypto ingenuity, and the reputation of various BitConnect promoters all disintegrated and came to an end.
Why BitConnect Could Do What it Did
Investors in crypto are greedy. There is a fine line between a good deal and a blatant fraud. Unfortunately, this space is a complex mix of tech enthusiasts, economics junkies, and individual liberty advocates who may not fully understand the implications of something in front of them.
Being skeptical and questioning things should be the norm in nascent industries like crypto. Getting scammed and swindled is far easier than finding a genuine investment scheme that is sustainable yet favorable.
Crypto needs more critics and rational outlook. Without this, identifying the next BitConnect may take far longer than it should, and this is adequately represented by the advent of FairWin.
Do your own research, or DYOR, only makes sense if you know what you’re researching. If you don’t, it’s always best to look for multiple third party opinions and look to trusted experts for their perspective.