BitConnect is gaming the system: BTC will keep rising, and they transact in dollars!

Okay, I've figured something out about BitConnect which makes it less profitable. I still think it's most likely to be a scam, because there is little information about the people organizing it, nor is there much info about the "trading bot."

Multiple Currencies Required

In order to participate in BitConnect, you need to send them BTC. Then, you convert that BTC to BCC (their coin, "BitConnect Coin" -- not "Bitcoin Cash"; that's BCH now that they were informed BitConnect used it first). You then issue a loan using the BCC, which ends up in dollars.

So, my initial loan to "the bot" was $12,430, but I had started from 4.92138373 BTC on 2017-07-09; on that date, BTC price according to the Coindesk BPI was $2,525.67. So I had sent $12,429.79 worth of BTC in, but I bought 21 cents more than that -- and I had some left over which I sent back out, so perhaps I had done so when the day's range was above the Coindesk BPI closing price (or something similar?). (I had 0.06656516 BCC remaining after doing the loan.)

Paid in FRNs

The "Lending Wallet" is paid in Federal Reserve Notes (they still call them "dollars" but they no longer are a specific weight of silver or gold, so they're really petro-terror-notes, but that's a long story). Every evening at 6:15 pm (since that's when I started, the first day), it posts funds to my "Lending Wallet" which has ranged from 0.38% to 2.41%.

Note that 0.38% daily would be almost 2.5x your money after a year, without compounding; it would be around 4x with compounding! So -- the worst return I've experienced so far, would still be far better than any return I've ever received from a bank, or even in stocks.

Convert, Convert, Convert!

So here's the thing: the Lending Wallet gets paid in $. Then, you purchase BCC in order to get the money out of there. You then almost immediately exchange the BCC for BTC. Then, you can send the BTC to your wallet.

This has two steps which can be gamed. THIS IS THE IMPORTANT PART!

The first, exchanging for BCC, can be gamed by always increasing the price of BCC. So, when you buy in, you're buying a larger amount of BCC than you would get at the end. This is basically under BitConnect's control; this page shows there are four exchanges which trade it, neither of which I've heard of: Livecoin, Liqui, Bleutrade, and "Coin exchange".

Since it's on exchanges, it's less likely to be gamed. But, I'll continue, because the average daily volume is so low -- the BitConnect management could still manipulate the price to their liking, especially if they release a small number of coins.

BTC is constantly climbing (with some sawteeth)

The price of BTC in USD tends to constantly be climbing. For instance, when I made the investment, BTC was $2525.67 and today is $3,359.31. In addition, the minimum loan term is 120 days -- and I'd imagine that in most 120-day ranges, the ending price was higher than the starting price, for BTC.

That means that, when paid in the "Lending Wallet", the amount of BTC I can purchase is less today than it was previously -- specifically, 75.18%. Not to mention the delta in the BCC price, which was then $59.96, and today is $82.87 -- meaning, the dollars purchase 72.35% of the BCC they did at the beginning.

So let's compare my first withdrawal, to what would have happened had I done it today.

Raw Withdrawal Numbers

Sent BitConnect 4.92138373 BTC. Converted that to 207.48628388 BCC, meaning my average purchase price for the BCC was $42.16 (even worse than above!). There was 0.06656516 BCC left after loaning out $12,430 (loans are in increments of $10), meaning I lent out 207.41971872 BCC.

I decided to wait until I had $1,000 in the Lending Wallet, before trying to extract funds. Not really sure of my motivation there; partially it was to reduce the transaction fees, I guess. Anyway, this was a good decision, as it showed me some things.

For the first withdrawal on 2017-07-17, I sent $1,114.98 from the Lending Wallet to the BitConnect Wallet. From there, I bought 21.47103284 BCC, meaning I bought them at a price of $51.93, or 23% more than I had initially "sold" them for(!) (when initiating the loan). I then sent out 21.537598 BCC (the difference is the above 0.06656516 BCC left over after initiating the loan), to the BTC Wallet.

From there, I purchased 0.54018450 BTC (with a 0.00135046 BTC fee), so it credited 0.53883403 BTC to my account, which I sent out to my wallet.

On 2017-07-17, the BTC price was $2,244.26, so that amount of BTC would be the equivalent of $1,209.28 -- so far, looking slightly better than it had started at ($1,114.98) -- but remember, we're using the end-of-day average price (or closing price -- I'm not sure how Coindesk BPI is calculated, actually), so the math is slightly off, like far above.

Fast-forward to today's prices, and redo the above calculation.

With a payout of $1,114.98, I could purchase BCC at $83.67, which would be 13.32592326 BCC. That right there is 2/3 of the BCC I had bought above.

I can then convert those BCC into BTC. The current "ask" for BCC is 0.02471100 BTC, and although there's only 6 available, let's just do the entire calculation at this best price: that would be 0.32929688 BTC.

HUGE MONEY DROP!

The previous transaction, starting from the same dollar amount, ended up as 0.53883403 BTC; today, it would only net me 0.32929688 BTC (and, that's not counting the transaction fees!). This is only 61.11% as much as the first transaction.

So, as both BCC and BTC prices rise, the return from this will continue to dwindle.

Exit-scam or not, don't do it...

In conclusion: whether this is a scam they intend to pull the plug on and do a Mt Gox-style exit, I don't really even care now. The above math shows that they were very clever in drafting their system.

I would imagine that, if the numbers go the opposite way, they'd close up shop. For now, the numbers are causing their customers' returns to seem far less than they do in dollar terms.

Even when I get my full amount back out, 3 months from now -- if the price of BTC skyrockets, then I won't get nearly the BTC I put in back out.

I now have a better understanding of why they created an intermediary coin.

Please share this with anybody you know that is considering investing in BitConnect. I would advise against it. I doubt I'll get back what I put in, even if they don't close up shop.

If you get a time machine, let me know July 8th that this is a bad idea. Then come back and see whether this post is still here. :)