Bitconnect in Depth Part 1 - The Bot

Investigation into the existence of the Bitconnect Bot

Is there really a Bot on Bitconnect.co or is it just a cover for a 'ponzi' scheme? This question is all too common. Every time I see a crypto creator post a blog or a youtube video on the subject of Bitconnect this is most certainly one of the questions that will be fired off in the comments. In this article I will study what a bot is and how it typically behaves in the market. I will look at the Bitconnect bot description and what evidence there is to support that explanation. Gathering any relevant information that might be available in the Bitconnect market history I can try to make a conclusion on the existence of The Bitconnect Bot.

What is a Bot? Is there such thing and if so how would it typically perform when trading in a market?

"Bot" is simply an abbreviation of robot. In this case it is in relation to a computer (a computer robot or an autonomous computer) that is using algorithmic trading. An algorithm is a "defined set of instructions" so algorithmic trading is the process of programming a computer with a defined set of instructions to trade with. The computer is able to make trades and generate profits at a far greater speed than any human could even come close to, this is often referred to as high frequency trading "HFT". The algorithm's rules can be based on prices, movements, market caps, speed of movements, and can incorporate any trading strategy or even combine strategy such as arbitrage and scalp trading. Arbitrage is buying a dual listed stock at a lower price in one market and simultaneously selling it at a higher price in another market, this offers the price difference as lower risk profit or arbitrage. Scalping is where you take many trades usually on the Bid/Ask spread and accumulate profit through the quantity of trades. Yes there is such a thing as algorithmic trading bots. In fact JP Morgan Chase & Co. recently reported that an average of 60% of financial equity trading is performed by computers compared to only 30% ten years ago.

Predictable markets provide the best habitat for the average algorithmic trading bot. Algorithms are usually written to capitalise on small movements in the market and often they are not designed or do not have the rule set to handle large market swings. If there is a market rush due to outside influence the market can change direction suddenly and violently. This becomes far to unstable for the bot to trade profitably with it's current set of instructions. Logically I can say when the market a trading bot is participating in is experiencing higher than normal volume the algorithm driving trades is less likely to perform as well as it could if the bot was trading in a lower than normal volume market or an average market. We can also make a general conclusion that trading bots are a real world thing and therefore it is entirely possible Bitconnect have written their own algorithms and are using algo-trading to make profits.

The Bitconnect Bot.

An excerpt from the Bitconnect.co website describing the bot. ' The interest rate that we can guarantee on your investment while using our investment platform is calculated by our BitConnect Price Volatility Software and accrued daily. Tracking the volatility of BTC/USD and the volatility of USD against major world currencies. The Bitcoin Price Volatility Software calculates interest in real-time for you, so you can monitor profit at any time. Increased volatility means there is greater uncertainty on the returns of your investment.'

Bitconnect have stated that the accrued daily interest is calculated by the Bitconnect Price Volatility Software so I am assuming this is what they call their algorithm. Something that strikes me as a little odd here is it says it is tracking (I assume trading) on the volatility of Bitcoin to fiat currencies. This would imply that it had Bitcoin or Fiat currencies to trade with. The issue here is the only currency I have ever lent to the bot was BitConnect coin so it stands to reason that if the bot is indeed trading it is trading with Bitconnect Coin and not Fiat currencies.

If the bot is trading with Bitconnect coin against the volatility of Bitcoin where is it trading? We can go to coin market cap and check which exchanges Bitconnect and Bitcoin can be traded at. Information from Coinmarketcap current at time of writing.

So from this chart we can see that approximately 90% of volume in the market is traded on the BCC (BitConnectCoin) Exchange. This particular exchange is located on the Bitconnect.co website.

Coinmarketcap can provide me with historic market volumes for Bitconnect Coin and Bitconnect.co can provide me with the past performance of their trading bot. Taking the past three months of data from each of these sources and charting them against each other I can try to recognize any patterns that might suggest the bot is actually trading in this market.

If the bot was trading in this market what I would expect to see on average is the two lines moving in opposite directions. As the daily coin volume increases or spikes upwards the volatility software interest rate decreases or spikes down and likewise a daily volume decrease or spike down should see an Increase or spike up in the volatility software interest rate. In conclusion I think there is a lot of evidence pointing toward the presence of a bot in this chart. Although at some stages the lines trend in the same direction for the most part they are trending away from each other.

Conclusion

Although this was not the answer I thought I would find when I started this investigation, there seems to be multiple real world evidence sources that support the existence of a 'BitConnect Bot'. I must point out that a smart individual or individual's could make the payout system seem like it was calculated by a bot trading in the market but you would think they would make it do so in the markets they say it actually trade's in ie. Fiat. So the evidence suggests that there is a bot and it does trade, interestingly it is likely trading BitConnect Coin on the Bitconnect.co exchange. In the next article I will expand on this by calculating how much a HFT bot trading the BCC exchange could accumulate. Is it enough to cover all investments? Can it accumulate profits in a market trending down?

This article was completed without speculation or assumption and I have tried to include evidence from reputable online sources for most points as well as include my calculations and graphs. I did make the assumption that the bot trades in bitconnect coin rather than fiat currencies like they advertise but I can only assume they have to use what I gave them, Bitconnect Coin. Keep your eye out for new "Bitconnect in Depth" articles releasing soon. I have been researching and digging for information and will write articles on sustainability, possible profit margins made by Bitconnect.co and predictions about when and how the lending program will end.

If you enjoyed this article, appreciate the work I put in or just finally feel a little more satisfied with a comprehensive answer then please leave me a comment and resteem this post so I know you enjoy getting in depth about various crypto subjects and would like to see more articles like this.

Many thanks for reading my article!

Cranky Pete (snicksnaka)

References.

1. http://www.investopedia.com/terms/a/algorithmictrading.asp
2. https://www.cnbc.com/2017/06/13/death-of-the-human-investor-just-10-percent-of-trading-is-regular-stock-picking-jpmorgan-estimates.html
3. https://bitconnect.co/learning-center/bitconnect-bitcoin-price-volatility-software
4. https://coinmarketcap.com/currencies/bitconnect/
5. https://coinmarketcap.com/currencies/bitconnect/historical-data/
6. https://bitconnect.co/learning-center/bitconnect-bitcoin-price-volatility-software

Image Sources:

1. Image Source: https://wallpaperscraft.com/download/keyboard_robot_bw_clone_lego_27558/1366x768
2. Image Source: https://www.linkedin.com/pulse/business-intelligence-bi-tip-day-goldman-sachs-jobs-dolezsar
3. Image Source: https://www.digitaltrends.com/computing/robot-journalist
4. Image Source: https://blogs.msdn.microsoft.com/uk_faculty_connection/2017/07/20/the-definitive-guide-to-the-coding-interview