BitConnect Ponzi Eats up 7% of Mined Bitcoin Daily! Part 7
How much of Bitcoin’s rise is Caused the BitConnect Ponzi? By my estimates 7% and growing.
I have already explained by thoughts on BitConnect. I have done my own research and believe it is a Ponzi scheme and set to collapse. I will admit that I have been fascinated by the drama around BitConnect sort of like watching a high speed chase on TV. You know there is going to be a wreck, you just don’t know when.
https://steemit.com/money/@cryptick/bitconnect-the-billion-dollar-pump-and-dump-part-6
How much of Bitcoins rise is caused by Bitconnect? With very limited information, it may be hard to know; but lets take a crack at it.
Prices are determined by Supply and Demand. When demand surpasses supply, prices rise. Or when there is not enough of a good prices rise. In Bitcoin’s case it is easy to measure supply because a block is mined every 10 minutes. That means there are 144 blocks a day. That means there are 1800 bitcoins at day. Valued at $4,000 a coin that is 7.2 millions of bitcoin each day.
Note: I know bitcoin is currently valued at 7,000+ a coin, but I am about to combine this with older data so let’s stick with this conservative number.
Now we know that bitcoin price is rising, and rising substantially so we know there is significantly more demand than supply.
How many people are in BitConnect?
Well this is a tough question. According to one source
https://chainz.cryptoid.info/bcc/#!rich
There are 12,561 accounts.
At $2,500 each (stay tuned for where that comes from) that is $31 million in total size.
While I have used this number a lot, I have my doubts about how reliable it is. In fact I have my doubts about high reliable all numbers from BitConnect are.
The other information I know is that two of the big BitConnect Promoters claim to have made a bunch of money.
Treyvon James
And CryptoNick
Now the other day I made some interesting observations on CrytpoNick’s numbers.
His you tube video shows 12.4 million in loans with 4,933 people and his earnings are now $400,000.
This is a very large sample and we can get some numbers. If we look at the total loan volume and divide it by the people we can see how much each one is invested for. That gives us $2,500 for an average loan amount.
Now I do not know if CyptoNick is under Trayvon. Let’s assume they are separate. If CryptoNick makes 400,000 with 4,933 people then Treyvon has 1,000,000 in earnings he should have 12,332 underneath him. Trayvon’s (downline's) volume should be in the 31 million dollar of loans area.
That means with just the two of the top US people we represent 17,000 people and 33 million in loans.
Now I do not know how much of the organization this represents. My gut is telling me there are a lot of other people in a lot of other countries. I do recall there being a video online about a Vietnamese woman who also earned a million dollars in BitConnect, but lets just just take a conservative guess and say this represents half of the organization. That would mean there are about 34,000 people and $66 million involved.
So one estimate gives me 31 million the other estimate gives me 66 million. Let’s just split this and call it a nice even $50 million. Hey, they are all estimates. (And when it grows at 1% a day it won't be accurate for long!)
In order for a Ponzi Scheme to continue, it needs to grow. Basically, the scheme pays out 1% a day, and if it is paying out 1% a day it needs to grow 1% a day. (Some may take a lower number here of 0.6% a day, but I like simple math.)
If the scheme has $50 million dollars in it, it needs to attract $500,000 of new investment each day.
OK lets go back to the supply of bitcoin. Each day there is 7.2 million dollars of Bitcoin mined.
That means that BitConnect could be sucking up 7% (500,0000/7,200,000) of the total supply of all new bitcoins (every day over the last 4 to six months). Now I know Bitcoin is priced at $7,300 a coin, but as the rest of these numbers –particularly “BitConnect volume number” are over the last 6 months the $4,000 number is much closer to a six month average. We can easily adjust to a higher current price we can just cut our results in half. At $8,000 a coin it would be taking up 3.5% of all new coins.
Either way, BitConnect is potentially a very substantial single reason for the high prices of Bitcoin.
Now if that does not have your attention let’s just assume this Ponzi scheme continues for 6 more months. Look at this chart.
In 6 months BitConnect will have $300 million invested and be sucking up $3 million dollars of new Bitcoins every day. That currently represents about half (at the $4,000) price of bitcoin mined or one quarter (at $8,000) of all new Bitcoins. I don’t know what price Bitcoin will be in 6 months, but it could of course be higher.
Could this make Bitcoin and BitConnect a self-fulfilling prophecy?
Maybe.
Now I make a lot of assumptions in the post. I think they are well-reasoned open and logical. I have had some great discussions with other people who think my numbers were too low. I do respect their opinions. I really wish I had better data, or more ways to check these numbers. If you have some methods or ideas, be sure to share in the comments below. I would even love to get several gut guesses.
Now there are a few other factors that we might want to consider? Is BitConnect holding their earnings in Bitcoin? I am assuming they are. As a fraudster who might need to skip out of town quickly, bitcoin represents an easy way to hide and take your wealth. If they are converting this wealth into US dollars, it really would not matter so much what percentage of bitcoin’s daily mining they buy because it would all be sold again. Given that they are smart, I would say they likely do a little of each maybe holding half in bitcoin, a quarter in US dollars and a quarter in cars, gold, houses, and dong (the currency of Vietnam where some of the early members live.)
We also are assuming the magically BitConnect bitcoin trading bot is not real. Now if it is real, how it could make those kinds of daily earnings, would be real interesting. That would be a different article though.
If BitConnect is a Ponzi Scheme; it will fail. When it does it could have a negative effect temporarily on Bitcoin; like previous major events. At the same time, if it is a Ponzi Scheme it could keep upward pressure on Bitcoin for a long time. It seems as if BitConnect has a cult like following.
There are some other scenarios that are worth mentioning. Currently, when you buy BitConnect you do a two part switch. First you buy Bitcoin, then you trade the bitcoin for BitConnect Coins. This is extremely complicated, so I haven’t spent much time on it. However the company has artificially limited the supply of BitConnect coins. When you start a loan you might buy 10 BitConnect coins, but then when you end the loan; they will give you back 1 coin, (because the loans are paid in dollar value of the coin, not the number of the coins and the price went up so much); if BitConnect gets big enough, it could do that with the BitCoins. And if they are smart enough to hold a significant portion of their money in Bitcoins, with buying powers now at 7% of production, this is not an impossible scenario. BitConnect could get so big it takes down Bitcoin!
Hey, these are some thoughts I have on the numbers. They are my best guesses, please share your thoughts with me.
What do you think the numbers should be?
@mstraney Definitely want your thoughts on this math!
Sorry for the delay. I haven't forgotten about your great investigative work, I've just been under the weather recently. The math appears reasonable. Even the use of ranges and estimation seems fine with me. It merely creates a probable range. It's the sources that are horribly unreliable, as I know you are all too aware. It's interesting that many believe you are underestimating total loan volume. If anything, I would think it might be overstated (That's just my hunch though).
In financial auditing there is the concept of directional testing, in which for a specific assertion of valuation we might ask would the party have an incentive to overstate or understate the item in question? I feel that it is pretty clear that the incentive for the sponsorship hustlers ( sadly the only available sources), is to overstate their loan volume to the public to make the public believe it's a great investment (this is similar to the directional incentive of publicly traded companies, I.E. Enron, Worldcom). In contrast, a small private business might have the incentive to understate revenues to reduce taxes owed ( less profit = less taxes due), since it is not trying to convince the public how great the company is to invest in(since it is privately owned/never publicly sold).
Of course, if Bitconnect.co was a legit actor with nothing to hide they themselves would publicly disclose and publish total loan volumes proudly. I won't be holding my breath for that day, as I'm sure neither will you.
Sorry you have been under the weather, thanks for your thoughts. Yeah, your points of BitConnect having an incentive to appear more successful are well reasoned. We are all guessing with hunches here. Interestingly, enough if you average a bunch of good guesses it is statistically becomes quite accurate. (I took a specialized cave search and rescue class once where a search commander needed to deploy people quickly with very limited information. They found the best way to make a decision was to brief about 4-6 people who knew the situation and have them independently guess the probabilities. Then take that result and average them. This was very accurate. The context of this would be we have someone lost in the cave the cave splits into three parts, which part do we search first, second and third. What is the likelihood they are lost in each part. While more people did improve the accuracy of the numbers, after you had about 4-6 people analyzing the situation each additional guess offered only a minor improvement. In a situation where timely action was important, this method offered a good concrete decision making framework. )
Very good analysis. I'm in BitConnect myself and has gotten my capital back, but not before started doing loan reinvesting so now. Once I got my capital back in August, I'm in the clear and I still earn some interest from those reinvestments until I get my capital back (or BitConnect closes).
@tytran now you are with free money, so whatever happens, you are earning interests with free funds. good you have your investment back. @gold84
Thanks. Yeah, it is great you got your capital back. Puts you in a much better low stress spot.
Just started.
Haven't got my capital back.
I am sticking with the scheme.
It is reassuring to know that one is in this knowing the attendant risks involved.
Moreover, we put in what we can afford to loose.
BitConnect still rocks, for now.
hey cryptick. here's a few observations for your model. i believe bitconnect is a brillant way for them to move btc from your pocket to theirs.
every transaction on bitconnect costs 0.0004 bitcoin. who knows how many take place a day. the more bitcoin appreciates the more it costs to transact. Currently at 10K, thats 4$ a trade. I'd guess at least 2.5K sell and 2.5K buy orders daily. So 2 btc per day up to 10 or more. They trade 365/d/y so thats between 7.5MM to 30 MM annually in fees ( that's not considering the anticipation of btc prices rising). These fees may just be enough to pay server bills. who knows.
the price of bitcoin is up 1000% this year. i believe bitconnect is an arbitrage play in the sense that they are betting that by you exchanging your bitcoin for fiat earnings (investors are not paid in bcc but dollars of course) that they can pay you 1% on your fiat and pocket the 2% you don't realize you are lending out. the only problem bitconnect will have is if 1) there is a large collapse in bitcoin (highly unlikely) but investigate tether which many claim is also a method of pumping bitcoin and 2) if people start to realize it's better to hold btc (but greed triumphs over rationality) 3) large accounts that try to break their model by using compounding at such a high number to destabilize the platform 4) inability to recruit new members
Example-lets say i invest 5 bitcoins 6 months ago. Well the price of those btc was equal to 10K us fiat. now those bitcoins are worth 50K us fiat. At a return of .01% paid daily for 120 days we see that they would return 12K fiat so 24K returned in fiat to btc is.....2.5 btc. Bitconnect keeps 2.5 bitcoin and keeps the 0.0004 btc trading fees. So unless you are pricing this model in btc you can't account for the true winners here....bitconnect
I agree with most of points #2 and #3. On point one I have looked partially into is bitcoin transactions. They batch the transactions, (one transaction has 10 to 40 transactions in it) this cuts down transaction costs, on the other hand they actually wash or churn the money multiple (say 5 to 10) times (needless) (well not really needlessly, -it is a way to hide the truth about what they are doing) (and it works because i gave up, no one cares and I am not getting enough payout on these posts to put in the time to prove the fraud they are doing) . So all that bitcoin churning is happening, but the fees are a minor cost of doing business in a ponzi scheme.
Yeah Bitconnect is getting so big it could take over bitcoin. I think it will pop soon; but we will see.
Another excellent writeup @cryptick, thanks for posting. I wrote about EthConnect a couple of weeks ago and how it looks almost identical to BitConnect.
I also noticed how BitConnect's roadmaps is almost at an end, just as EthConnect's roadmap begins. Interestingly, EthConnect's roadmap also lasts about a year and feature much the same milestones including the mythical listing on Bittrex exchange.
I was watching a video earlier by J4Snip and Clif High and Clif reckoned that the signs are that BitConnect will come to an end by around the start of December. If that should happen, a lot of people are going to get stung forsure. You, me, and others will have to find some other schemes to ponder and write about :-)
Thanks, Nice writeup on EthConnect. Wow. It is crazy the number of schemes out there.
I like the point they make in the report, that BitConnect is now only paying on three levels; instead of 7 or 13 and this is because they are running out of money.
Thought this was interesting via google trends. Where are are the World Wide BitConnect Hot spots? Maseru, Lesotho. Aruba, and Lam Dong Vietnam.
I believe that the founders or many of the early people are Vietnamese. Vietnamese have a reputation of being willing to scam people. While I have not traveled to Africa Lesotho is a little country in south Africa were Ponzu schemes have proliferated. Aruba seems like a nice tropical island to retire too so maybe that is where they are stashing their ill-gotten wealth. This is all simply my guesses. Sometime after the bitconnect bubble blows up, if someone -who is completely clueless is looking for a good location to start looking; google trends and past searching indicate these would be great locations to start. There could also be server locations, or locations of large number of participants.
Interesting. I believe you or another author pointed out fake website traffic likely paid for to jack up the website rank(ie Alexa). One possibility is that they are also trying to spam Google's Pagerank algorithm to boost its results position(aka a Google bomb). There are many BTC services for this, and Bitconnect has a lot of BTC.
If the spamming service was native to asia that would likely increase the proportion from these countries. Also, the fact that their meetup/conference was held in Thailand further bolsters the case that Bitconnect is headquartered in south Asia.
I checked last 7 days, Kosovo is no. 1. How is that possoble, it is a small country 2m only. I feel sad cause it’s my home country. A lot of lifes are going to be ruined.
Yeah, it is sad. I have done my best to warm people, and a lot of other people have as well, but a lot of people are going to be disappointed.
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STOPWell looking at a recent rich list it is now up to 16,140.
I kinda find it hard to believe there are only 16k investors. Its just does not make any sense. I feel like there are way bitconnect youtube channels that blockchain adresses. Do you trust that number?
I DO NOT trust ANY of the numbers coming from BitConnect. Now that we have that cleared up, I think the You tube channels numbers seem more trustable. If you go back an read all the posts you can see where I work through these numbers several times. I have done a bunch of my own research in the past, they do such a great job manipulating information it is hard to know where the numbers are really at.
I just went over to you tube and did a Bitconnect search. There were 271,000 results. Now I did not watch many of those video and am not really sure about guessing, but if every person on bitconnect posted a video every day, like cryptonick, and we assumed bitconnect has been going for 6 months, that would 270,000/180 days equals 1,500 people. Now what percentage of people would post to you tube every day. 1 in 10 (then it would be 15,000 people. 5% (then it would be 30,000 people. While I think cryptonick's youtube bitconnect success has caused lots of copycats, and there are lots of other videos that might mention it, or be from the "haters" your point is a good and a valid one. I am assuming when this thing crashes we will see some sort of accurate estimate.
And for the record that number has gone up in the last week.
Still with bitcoin price skyrocketing, bitconnect will thrive. I don't trust anything from bitconnect, but it's amazing how they could survive this long. The events that are happening right now are simply irrational exuberance. I have been holding crypto for the past 2 years and always been comfortable. Never worried about price or anything, now its first time i started to get worried. Price can shoot up like crazy, or it can crash so bad, hard to predict its simply crazy.
Look at this i got from zerohedge, how long did it take bitcoin to reach every 1k.
$0000 - $1000: 1789 days
$1000- $2000: 1271 days
$2000- $3000: 23 days
$3000- $4000: 62 days
$4000- $5000: 61 days
$5000- $6000: 8 days
$6000- $7000: 13 days
$7000- $8000: 14 days
$8000- $9000: 9 days
$9000-$10000: 2 days
$10000-$11000: 1 day
Yeah the bitcoin price rising ads an interesting element to BitConnect. I would add one thing, it does not at all surprise me to see them last a little longer than 6 months (the minimum holding period for full return on $10,000+ loan) or even 270 days (the return period for a smaller investment. It will be right after those periods expire I would expect a high probability of failure. Based on search it seems to have gotten popular in june/july so we are just entering the first period of redemptions. Time will tell.
If there is a bitcoin bear market for one month, they will be gone. The problem was, bitcoin was heavily bid every single dip. We will wait and see.
I agree a bear market could expose them. We don't exactly know how they are doing the accounting (Dollars or BTC) but it took the 2008 subprime financial crisis to expose the Bernie Madoff investment scam. Expectation that there is a greater chance of it failing in a bear BTC market is well reasoned (note: a scam might still be able to survive BTC bear market.)(if they are smart, and indications are they are, they have likely thought of this.)
I found a few data which I think will interest you. What do you think?
https://steemit.com/bitconnect/@ctyptouniverse/bitconnect-counting-the-last-days-of-a-ponzi-scheme
Now that BitConnect has collapsed this post seems like ancient history. It is of interest to note that Bitconnect's collapse coincided with a fall in Bitcoin. Now whether Bitcoin's fall caused Bitconnect's collapse, or if Bitconnect's collapse cause bitcoin's to fall is hard to say. It might -but probably is not a coincidence- and both might have been caused by some other factor. This factor may not have even been significant. I do think both collapsing about the same time is a valid observation, and this post certainly showed that there was potential for that.