Bitconnect Scam: The $2.6 BN Ponzi Scheme [2019 Update]

The bitconnect scam is the biggest and most well known Ponzi scheme in cryptocurrency history. In just over a year, the ‘project’ managed to propel itself from an obscure ICO to a crypto project valued at a staggering $2.6 billion. Fast forward an additional 8 months and Bitconnect has managed to get itself delisted from every single cryptocurrency exchange. This has made the BCC token effectively worthless and given BCC token holders a 100% loss.

In a nutshell, what actually happened?

Bitconnect scam roundup

The Rise Of Bitconnect

Bitconnect launched their ICO on the 15th November 2016 and closed the crowd sale on the 30th of December. How much did the BCC ICO raise? The answer may be less than you think: Bitconnect only raised 468 Bitcoin, worth around $410,000 at the time. Of course, before the ICO bubble in mid-2017, it was quite typical for projects to be raising this kind of money. In contrast, nowadays it is normal to see projects raise anywhere between $10M and $50M. The birth of Bitconnect happened in a completely different market environment than we see today.

Bitconnect logo

The incredible thing about the Bitconnect ICO is that the ICO had no whitepaper, to begin with. The team was also completely anonymous and it wasn’t exactly clear what the project actually aimed to do:

“BitConnect coin is an open source, peer-to-peer, community-driven decentralized cryptocurrency that allows people to store and invest their wealth in a non-government controlled currency, and even earn a substantial interest on investment. This means anyone holding BitConnect Coin in their wallet will receive interest on their balance in return for helping maintain the security of the network.”

What Was Promised During The BCC ICO?

On the 2nd December 2016, Bitconnect released their official timeline. The brief statement outlined four different project phases from 2016 to 2017.

Phase 1 – It was announced that ICO marketing efforts were already underway and would run till the end of December 2016. Part of this marketing campaign was the giveaway of 4.8 million BCC coins to both the community and cryptocurrency investors.

Phase 2 – Was scheduled for Q1 of 2017. This involved the launch of the BCC wallet and desktop client. The purpose of this software was to allow for the staking and mining of BCC coins.

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Phase 3 – In Q2 2017 Bitconnect planned to push mining live and launch the staking pool. Bitconnect claimed that staking was an incredible opportunity for investors. By simply staking BCC coins in this new wallet, proof of stake mining would ensure that holders would get a 120% return per year. That’s not all… The project also intended to push additional exchange listings during this quarter too.

Phase 4 – Q3 of 2017 would see the introduction of the ‘Smart Card’ and a drive towards merchant adoption of BCC coin. Essentially, the promise was that BCC coin would be spendable with many different retailers.

Scam Warning Signs: The Infamous Bitconnect Lending Platform

In 2017, Bitconnect announced the launch of their lending platform. Sadly, this is when BCC really started to gain traction and attention. However, the warning signs of a Ponzi scheme were clear for all to see. The cryptocurrency’s website started promising investors over 480% returns per year in USD and a guaranteed profit of over 91%. What’s worse, they actively promoted the idea that it was a one-way bet, with no financial risk at all.

The warning lights should have been flashing. Bear in mind that a return of 5% to 10% per year is considered a solid return in most other assets. But how did Bitconnect explain away these concerns? They claimed to have a special trading bot, that was so good that it could not lose.

The worst thing about this scam is that no proper evidence was ever given to show that the trading bot actually existed. Investors just assumed it existed and could do what was claimed.

Warning Sign #1: Phenomenal Returns Were Promised

So, what was actually promised by Bitconnect?

Bitconnect lending returns table

Volatility software interest was dependent on the performance of the bot. If it was a good month, then investors could expect returns of up to 40%. The guaranteed daily interest only started kicking in for investment in excess of $1,010 and scaled up to 0.25% daily. Put simply:

The volatility software interest + the daily interest = Monthly return

This scam managed to fool so many people because of the low advertised daily percentage. The rise of payday lending companies such as Wonga may have also normalized the high daily interest figures as well. These companies operated in the traditional financial sector, however, and they charged up to 0.80% daily interest on loans.  

After all, if you loaned out $10,010 to Bitconnect and got a guaranteed daily interest rate of 0.25%, then this all of a sudden could look pretty reasonable compared to the returns payday lenders were generating.

What exactly were the returns promised?

  • 0.25% daily interest compounded for a year = 91% returns.
  • 40% monthly returns compounded for a year = 480% returns.

When the numbers are crunched, Bitconnect was effectively promising 91% to 571% returns a year for users investing in excess of $10,010.

However, these figures are just from individuals lending out their own money. The BCC team added yet another way for people to make additional money. How? Well, BCC also opened up a very lucrative referral system.

Bitconnect referral program graphic

The BCC referral program

The first thing to point out is that the affiliate structure graphic looks exactly like a pyramid. How did it work? Well, if you directly referred anyone to Bitconnect then you would earn a percentage of the amount they invested on the lending platform. So if you referred your friend and they lent out $10,010, you would be paid $700 in BCC tokens. Sounds pretty lucrative right? Well, it gets even more insane. If the friend you referred then referred someone else, then you would earn 3% of the total this person invested in the lending platform and so on, up to seven levels of referrals.

The point is that these referral percentages were guaranteed. So if the trading bot existed, it actually had to perform significantly better than the 0.25% daily guaranteed gains advertised. Otherwise, the referral program would be utterly unsustainable.

Stats: The Compound Interest Problem

If we assume that you lent out $10,010, got the 0.25% daily interest, reinvested everything back into the lending platform, what do the numbers look like?

  • 1st Year: $24,901.94 balance.
  • 2nd Year: $62,089.98 balance.
  • 3rd Year: $154,637.64 balance.
  • 4th Year: $385,131.41 balance.
  • 5th Year: $959,185.60 balance.
  • 6th Year: $2,388,891.17 balance.
  • 7th Year: $5,949,631.68 balance.
  • 8th Year: $14,817,802.28 valance.
  • 9th Year: $36,904,345.72 balance.
  • 10th Year: $91,911,790.15 balance.

So if you invested $10,010 into Bitconnect and reinvested everything back into the platform for 10 years. Guess, what you would have been worth nearly $92 million by the end of it. That’s assuming you didn’t earn any referral fees and that the achieved volatility software interest was 0% per month.

Sure, $92 million won’t even put you on the Forbes rich list. Indeed, you need a total wealth of $1 billion to get into the top 2124 richest people in the world. However, what Bitconnect were promising is that for the cost of $10,010 in 10 years time, you could be as rich as the rapper Drake (whose net worth was estimated to be around $90 million).

Drake rapper image

Seems too good to be true right?

Warning Sign #2: Why So Long To Get Your Capital Back?

So, lending your capital out for a fixed amount of time may seem reasonable. However, pretty much every legitimate financial product gives investors a way to get their money back whenever they want. Yes, there may be a fee associated with the early drawdown, but typically legitimate financial products do give investors this option. With Bitconnect, there was no such option. It was almost as if they wanted to lock your money into the BCC system and delay the inevitable collapse of the Ponzi scheme. In fact, this was exactly what happened.

Warning Sign #3: Spelling & English Errors

The BCC lending platform was first announced on the Bitconnect site. The problem was that this announcement had glaring spelling errors. What’s the big deal about poor spelling? Well, any large reputable company would have the announcement checked for errors before publishing.

Bitconnect lending graphic with spelling errors

BCC lending spelling errors

To understand why basic errors like this could help identify a scam, you need to get into the mind of a scammer.

  • Scam projects are not likely to have too many employees. Why? Well, at some point the scheme will fall apart and having a lot of employees leaves a lot of witnesses who can talk to the police.
  • Paying for employees is expensive. Why would scammers want to reduce thier profits when they finally exit?

Warning Sign #4: The Business Model & Mechanics Of The Scheme

So, many people were led to believe that they would get phenomenal returns by investing in a special trading bot. What should have been the warning signs?

The fund flows of the lending platform were meant to work like this: The user sends Bitcoin to buy BCC > BCC was then converted into USD for lending. During the time of Bitconnects existence, the BCC coin seemed immune from any real price downside.

Bitconnect all-time-high price graph

Does the graph above look legit?  Well, not really when you consider how a cryptocurrency price chart like this can be generated. When it came to lending, it seems quite obvious that Bitconnect never exchanged the BCC coins to USD. Instead, they just sat on them. Why would they do this?  Well, if Bitconnect where truly converting BCC coin into USD and converting this back to BCC to pay investors, then there should have been significant sell pressure for BCC.

The scam basically resulted in:

  • Investors handing over their Bitcoin to Bitconnect.
  • Bitconnect then held onto the BCC coins lent out and reduced the circulating supply. This means that as more people were attracted to the scheme, they were chasing an ever decreasing supply of BCC coins. Anyone who knows anything about economics will know that a shrinking supply and increasing demand will make the price increase.

Investors who chose to stake their BCC coins also contributed to the shrinking tradable coin supply. Bitconnect essentially made two highly efficient mechanisms to take coins out of the tradable supply. When this was combined with a highly lucrative referral program, the scammers could sit back and let others drive up the demand for their cryptocurrency.

Warning Sign #5: The Illusion That Everyone Was Getting Rich

Baby yes i'm rich graphic

One of the main reasons why the Bitconnect scam lasted so long and gained so much traction was the illusion that everyone was making money hand over fist. Shrinking the tradable supply of BCC coin and increasing the demand through an aggressive multi-tiered affiliate program did increase the price of the crypto. However, for the scam to remain in operation the BCC tokens price increases must be greater than the interest payments made. When the interests payments outweigh the BCC coins price rises, that’s when the scam falls apart.

Previously, we have shown how $10,010 reinvested into Bitconnect would have resulted in a balance of around $92 million in just 10 years. The point is that it was inevitable that the BCC coin could not rise in value and keep up with interest payments indefinitely. The lesson is: If it looks like everyone is getting rich, then you are probably looking at a scam. Maybe it’s actually surprising that Bitconnect lasted as long as it did.

Warning Sign #6: BCC Trading Was Highly Susceptible To Market Manipulation

Over 85% of BCC coin’s volume was on the Bitconnect exchange. This is actually a massive problem as Bitconnect held a big proportion of the coins and incentivized the removal of coins from the tradable supply. This created a situation where Bitconnect was actually the main market seller of BCC coins. So, how can this situation be used to manipulate prices?

Well, when there is high demand for a cryptocurrency and you control the majority of the sell side of the order book, you can then place ever higher limit sell orders. For people to get in on the Bitconnect action and get those insane returns, people were forced to pay ever higher prices for BCC coins.

Also, bear in mind that Bitconnect took people’s Bitcoin to buy BCC coins. This also meant that they could inject Bitcoin buy orders to artificially support the price if this was required.

Warning Sign #7: The Unbeatable Trading Bot

Bitconnect trading bot graphic

What you have to ask yourself is: Is this anonymous team so good that they actually made a trading bot that generated profit every day? Markets go up and down and even the smartest minds at the likes of Goldman Sachs or JP Morgan have been unable to create a bot that generates profits every day. Truly, it was just as likely for Bitconnect to build an unbeatable trading bot, as it is for someone to turn lead into gold.

In liquid markets, one characteristic is that any investment scheme has diminishing returns. Think about it. If everyone gave us $50 billion to invest in Bitcoin and we had to buy the asset in a short space of time, there is no doubt that these buy orders would drastically inflate the price of the asset. This is an extreme example but the principle stands. If this trading bot actually existed, then the returns generated should decrease as more money is invested. This is the main reason why so many smallcap investment funds have capital limitations placed on them. Quite simply, they cannot generate a profit if too much money is invested in them.

However, the Bitconnect bot had no such problem. It seemed that BCC had the magic solution to generate a solid return in excess of 0.25% every day for an infinite amount of money. Unfortunately, markets just don’t work like that.

Warning Sign #8: Aggressive YouTube Promotion

Trevon James Bitconnect youtube promotion

The first thing to make clear is that there were a significant number of Crypto YouTubers who tried to warn their audiences of the scam. However, do you really believe that the smart money is following a well-known YouTuber? Or is it more likely that:

  • YouTubers are used by scammers to persuade a lot of people to enter the Ponzi scheme quickly?
  • YouTubers see an opportunity to make fast money from their audiences.

Four YouTuber’s, in particular, stood out for their aggressive promotion of Bitconnect. It is maybe not a surprise that the four of them were not very knowledgeable about cryptocurrencies at all. Most people with a basic understanding of cryptocurrency could have spotted the promotional videos as being nothing more than a quick money grab. The problem was that most of these content creators audience were completely new to cryptocurrency and this made them easy Ponzi scheme victims.

So, who were these YouTube scam promoters? Trevon James, Crypto Nick, Ryan Hildreth, and Craig Grant. There is still hope for justice, with the aforementioned YouTubers are all embroiled in a legal lawsuit in the US.

The Collapse Of Bitconnect

Bitconnect $2.6bn market cap on coinmarketcap.com

On the 7th January 2018, BCC coin was pretty much at all-time-highs. According to Coinmarketcap, the project was valued at a staggering $2.6 billion and the BCC coin as being traded for $432 per coin.

Mysteriously, the BCC coin price started to go into freefall. By January 15th, 2018, the cryptocurrency was trading at just $290 per coin. That’s right, BCC holders lost 33% of the USD value of their coins in just over a week.

On the 16th of January 2018, Bitconnect announced to the world that they were closing down the lending platform immediately and the exchange would be shut just five days later. It all suddenly dawned on investors that Bitconnect was a giant Ponzi scheme and this was the BCC crew rushing for the exits. Now it made sense why the price of BCC has been falling so sharply during the last week: Those on the inside were offloading their coins onto the market.

What happened next was the biggest bloodbath in crypto history. Over the course of four days, BCC coin went from $290 per coin on the 15th, to just $25.91 on the 18th on Jan. That’s an over 90% fall in price.

The scary thing about the Bitconnect scam is that BCC continued to be traded on some exchanges until the 11th August 2018, when it was finally delisted from every exchange in the world. The last ever BCC coin trade was made for $0.68, which is an astonishingly high figure given that its value was zero. At the time of delisting, Bitconnect still had a market cap of $6.69 million., This just goes to show how hard it is to truly kill off a cryptocurrency, scam or not.

BCC coin price graph

What Was Bitconnect’s Excuse?

In BCC’s announcement on the 16th of January, they cited the following reasons for shutting down the platform.

Official reason for Bitconnect closing down

BCC’s 16th Jan announcement

The excuses simply didn’t add up.

    1. Bad press: Shouldn’t impact on the unbeatable trading bot the geniuses at Bitconnect had created. The only thing bad press does is reduce the numbers of new depositors into the Bitconnect lending platform.
    2. Cease and desist: These orders were issued by US authorities. However, BCC was actually registered as a UK company in Ashford.
    3. DDoS: This seems an exceptionally weak excuse seeing that the geniuses at Bitconnect claimed to have the technical know how to make the world’s first unbeatable trading bot. If they were talented, then DDos attacks should have been a walk in the park for them to deal with.

The Aftermath

A sobering thought is that an estimated 1.5 million people lost their money in the Bitconnect scam. Some of them had lost their entire life savings. It’s no coincidence that the Bitconnect sub-Reddit had the suicide hotline as one of the top threads.

Did people really take their own lives because of this scam? Most likely, yes. As heartbreaking as it is to see YouTubers like ‘Real Estate Student’ spill their guts on YouTube, the people who were most at risk are probably the silent ones. The true human cost of Bitconnect will probably never be known. What’s for sure, is that BCC hurt hundreds of thousands of people.

An additional chapter in this shameful story was how so many in the cryptocurrency community made fun of those that lost their money. It seemed to be just about kicking broken people when they were down on the ground and gasping for air.

People make fun of Bitconnect victims

Some may label these kinds of comments as ‘banter’. However, just consider that these people were totally taken advantage of. What had they really done wrong? The truth is that anyone can fall for a scam. Yes, some may say that there were so many red flags that it was an obvious scam but that does not justify a lack of compassion towards people who were tricked.

Who Was Behind The Bitconnect Scam?

Bitconnect organisation chart

The chart above shows the known organizational structure of Bitconnect and their key representatives. Yes, the naming and shaming of these con artists is perfectly justified. However, spare a thought for Madeline Bigatton, the wife of  John Bigatton, the Bitconnect Director of Australian Promotions.

Madeline Bigatton wife of Bitconnect Director of Australian Promotions

On the 25th March 2018, Madeline dropped her children off at school and has never been seen again. Her car was discovered empty by police. The Sydney based mum and her husband had received persistent death threats ever since the fall of BCC. Have those threats been carried out against family members of the Bitconnect con-artists?

There is no doubt that BCC has ruined the lives of many people: The scammers themselves, their families and the community they took advantage of.

Was That The End Of The Bitconnect Story?

Incredibly, no. Just a day after the announced closure of Bitconnect, the gang had cooked up another scheme to try and scam people again. No joke, the Bitconnect X ICO was in full swing.

Bitconnect announcing BCC discount for Bitconnect X ICO

BCC discount for Bitconnect X ICO

The bitconnect scammers were kindly offering investors the chance to pay a massive premium over the current value of BCC coins to say ‘sorry’ to the community. So, how much was the second Ponzi scheme wanting to raise in ICO funding? $500 million. We’re not kidding.

Needless to say, Bitconnect X was a completely unsuccessful ICO. However, we imagine quite a few desperate people lost even more money in this second scam.

What’s Up With BCC Now?

Realistically, investors will not get their money back. Why is this? Well, BCC created a massive web of different companies registered in different tax havens and the money is all but untraceable. This level of obfuscation just shows how they knew exactly what they were doing. All BCC investors can hope for now is that the known masterminds behind Bitconnect will be brought to justice. Multiple lawsuits are still in progress and this does include the prosecution of major YouTubers who promoted this Ponzi scheme to their audiences.

Final Word

The BCC Ponzi scheme currently stands at the biggest scam in cryptocurrency history. There is no doubt that scam has tarnished cryptocurrency and the truth is that many of those affected will never come back into this market.

The bitconnect scam just goes to show why everyone should do proper due diligence before buying any cryptocurrency. The problem with BCC was that crypto was completely new to many of these people and they frankly didn’t understand what they were signing up for. That’s why every cryptocurrency enthusiast has a responsibility to shout out loud if they suspect a scam.

Hopefully, after reading this article you will be in better shape to spot a scam and save your money. If you suspect a cryptocurrency project is doing shady things, please do email [email protected]. I’ll personally look into it and if something is not quite right with the alleged project, we’ll write an article about it and spread the word.

Further Reading At TotalCrypto.io
1) Looking for some of the most promising legit projects out there? We have you covered with our top five picks.

2) Ever wondered if Kucoin or Binance was the best exchange for you? We put the two heads up and reveal the results.

3) Still not had enough about learning about crypto scams? Find out about Pincoin and how they moonlighted with $660M.

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