BitConnect was a popular cryptocurrency lending and trading platform. Thousands of users were using the service and lending their own funds, which would yield them a small return each day, allowing them to increase their portfolio. At least, that is what the platform advertised. However, this was untrue for the most part and it misled many.
After receiving two cease and desist letters by the Texas State Securities Board and the North Carolina Secretary of State Securities Division, and after being eyed by lawmakers and officials, the company decided to shut down the exchange. The announcement came in the form of a blog post on January 16th. In addition to the letters, the post mentioned “continuous bad press” and a growing “lack of confidence in the platform” due to attacks and security issues. For many in the crypto community, BitConnect shutting down was only a matter of time. What has been deemed as a scam and Ponzi scheme for months is now officially ceasing lending activities, but is keeping its wallet functionality for the moment. Thousands of users lost all their funds that were stored on the platform and are still not being able to recover them. There are numerous concerns now that the lending site has closed its doors, but the most pressing and important one in investors’ minds is where did the money go? Fear amongst former users is that we are in the midst of a second Mt. Gox type situation, where thousands of individuals saw their funds vanish overnight when the exchange supposedly got “hacked” and then later ceased all activities. What truly happened is still unclear, but it is extremely probable that the whole operation was actually a scam and that CEO Mark Karpelès was behind it all.
If BitConnect truly turns out to be a well-ran Ponzi scheme, then investors most likely will never get their funds returned. Panic is spreading very fast within the cryptocurrency community, as these represented life savings for some.
BitConnect loses 90% of its value
The crypto community responded strongly to the announcement that BitConnect was shutting down its service. One of the most significant event following the news was that the BitConnect Coin (BCC) completely collapsed and lost 90% of its value. In order to participate in lending activities on BitConnect, users had to first purchase BCC. This means that users were forced to invest money into the virtual currency, which pumped its price considerably. About a week ago, BCC was trading at more than $350 but yesterday, it plummeted to around $30. As a result, a lot of users that invested in the coin are experiencing very damaging losses in dollars and in bitcoin terms. The huge problem is that they are now owning a coin that has no platform or service backing it up. The lending and trading platform is gone, and the coin is useless since it was used for those activities.
Investors lose money, reddit in chaos
In addition to BCC being worth 90% less, users who had funds stored on the platform have completely lost everything. Since BitConnect shut down and the service doesn’t exist anymore, participants completely lost what was left on the exchange. Yesterday, the r/bitconnect subreddit unfortunately became a torn place where depleted users told their stories mentioning thousands of dollars lost, life savings disappearing into thin air, and lives ruined.
Here are a few screen captures of some posts from the subreddit, which is now private.
It is still unclear if BitConnect intends to give the funds back to those who have lost everything, but former users of the exchange are really hoping and keeping faith. Most are infuriated and are already planning on taking legal action against the company.
One of the numerous issues with BitConnect is that they promised a lot, and it was too good to be true. The biggest promise they made was claiming that investors could obtain “outsized returns depending on how long the loan was for.” Promising extremely high returns influenced users to invest more and “place” their money to grow their portfolio. However, in reality, returns were very very low, usually less than 1%. Moreover, it worked like a Ponzi scheme, meaning that big investors were getting paid with funds from small investors. Now that the exchange is closed, funds have vanished and investors are left with nothing.
Lessons: Do not trust anybody, DYOR, and never invest more than what you are ready to lose
In the cryptocurrency space, it is extremely important to be wary of companies, exchanges and all types of investments. Since the market is unregulated, many fraudulent activities are able to go unnoticed for months and sometimes years. Many scams exist, Ponzi schemes are everywhere and numerous companies have bad intentions. It is therefore extremely important to “Do Your Own Research” or “DYOR”, which is a popular saying in the crypto community, usually referring to coins and tokens, but also companies, what and who is behind them. It is crucial to be extremely cautious of where our funds go, and what we are investing in. Mt. Gox in 2014 and now BitConnect in 2018 are good lessons for the future, as digital currencies continue to grow and the market continues to expand. Another important lesson regarding investing in any context, especially in cryptocurrency, is to “never invest more than what you are ready to lose”. This way, even if the worst happens, one won’t lose funds that were essential to live. The money invested should be able to be lost without any repercussion on one’s life. This ensures protection and makes the investment almost completely risk-free.
TLDR: The cryptocurrency lending and trading platform BitConnect has announced that it was shutting down the service after receiving two cease and desist orders. As a result, users lost their funds and the BitConnect Coin lost 90% of its value in a just a few days.