Bitconnect: Ponzi Scam or Great Investment Opportunity? [Token Investigations pt 41/50]
Bitconnect is a company that claims to offer stable investment returns of about 1% per day by matching bitcoin lenders with borrowers. It faces several credible allegations of being a ponzi scheme.
If I’ve learned anything after writing reviews of 40 different blockchains, it’s that you should stay neutral and do a lot of research. It often takes a lot of time and effort to cut through the layers of hype and misinformation that can obfuscate the truth about a project.
With Bitconnect, I had to be honest with myself from the beginning: While there is some “debate” on the issue, it seemed like a clear scam to me.
My reasoning on this was pretty simple. If some of the smartest and most reputable people in the blockchain space were calling Bitconnect a ponzi scheme, how could it not be? What incentive did Vtalik Buterin or Charlie Lee have to lie about this?
The Next Web points out a Vtalik Buterin tweet as well, which I can’t personally find, linking this YouTube video:
The video must be seen to be believed… it’s very. not. good.
Another Tweet, again originally found on The Next Web’s article:
With all of these first impressions weighing on my mind, I did not feel optimistic about Bitconnect. In spite of all that, I resolved to look into it and give it an honest chance before making my final judgement.
What is a Ponzi Scheme?
The most common phrase thrown at Bitconnect is “ponzi scheme”. We hear a lot of blockchain projects accused of this status, but I felt a little hazy on the definition.
A quick Google search turns up this definition: “a form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors”
For example, let’s imagine that John Doe starts LambosForEverybody Inc. He says that the business is thriving and anybody who invests $100 will receive $120 a week later.
Group A, 5 people, all are convinced to give him $100. John now has $500.
![](https://steemitimages.com/640x0/https://i.imgur.com/L9YDBrl.jpg)
He convinces a second group, Group B, to do the same thing. Group B consists of 10 people. John earns $1000, plus the $500 he already has, bringing him to $1,500.
![](https://steemitimages.com/640x0/https://i.imgur.com/YKUgUoT.jpg)
Now John can pay out Group A, costing him $600. That group is happy and they think the business is legitimate.
![](https://steemitimages.com/640x0/https://i.imgur.com/s5lQza1.jpg)
John has $900 left. he has to convince more people to join - maybe now at higher prices. Group C consists of 20 people each investing $500. John is up to $10,900 - and can easily pay $120 x 10 = $1,200 to pay off Group B.
![](https://steemitimages.com/640x0/https://i.imgur.com/W2QJF98.jpg)
This scheme keeps working - and John gets richer - as long as he keeps finding new people to join it. As soon as John can’t raise more money, the scheme breaks. For example - after John pays off Group B, now he has $9,700 left. By now he’s taken a vacation and bought a bunch of fancy cheeses and is down to $4,000.
![](https://steemitimages.com/640x0/https://i.imgur.com/gIOFP5R.jpg)
He needs to find Group D so that he can pay off group C, whom he owes a collective $11,000.
What if John fails to find Group D? At best, he can only give $200 back to each person. When this happens, everybody in Group C loses $300 (assuming they get anything back at all) and the scam falls apart.
![](https://steemitimages.com/640x0/https://i.imgur.com/9XZccJq.jpg)
History shows that most of the time, the perpetrators of these kinds of schemes are able to get away with little or no punishment. And there will always be some people desperate/foolish enough to participate in these scams. That means it’s up to you to be vigilant and protect yourself.
Now that we have a clear picture of what a ponzi scam is, we have to ask: Is Bitconnect a ponzi scam?
To answer that question, we have to dig into the history of Bitconnect.
The History of Bitconnect
Most of the information about Bitconnect comes from Bitconnect or its users (like these, scammy looking, examples), making it hard to find unbiased info.
The attempted Wikipedia entry on Bitconnect was deleted for exactly this reason - the info all comes from the company itself.
Ethan Vanderbilt was the first person I found who could offer historical information on the venture.
Ethan points out that it is impossible to find any information on the people behind Bitconnect. The company was formed in a way that intentionally obscures the identities of the people responsible, and no public information exists. See this:
![](https://steemitimages.com/640x0/https://i.imgur.com/sRrM4Xy.png)
source
Alongside Ethan’s page, Bitcoin Wiki points out that Bitconnect started out with the stated mission of “mak[ing] Bitcoin the main payment system in use by the world,” before switching soon thereafter to their current business model of interest-based lending.
The company’s roadmap ended in November 2017, so there is no indication of what comes next for the company. The entire roadmap between 2016 and 2017 was focused on fortifying the Bitconnect blockchain and adding debit card access to funds, which they apparently have done and I have to admit the website looks pretty slick.
Earning Money Through Bitconnect
Bitconnect’s major feature is that you can lend money through them and earn high interest rates. This involves buying Bitconnect coins and then voluntarily locking them up for a pre-determined amount of time, such as 100 days.
While the coins are locked up, they are (supposedly) lent out to others and you earn a portion of the interest. Here is Bitconnect’s chart to show off those rates:
![](https://steemitimages.com/640x0/https://i.imgur.com/yZqDHLB.png)
You heard them right - low risk, 40% per month returns. Sound reasonable to you?
Of course, that is not reasonable. While cryptocurrency has given tremendous gains for many investors so far, 40% per month is an absurd number to guarantee…
In contrast, the U.S. stock market gains an average of 7% per year..
You can earn more than 7% annual while keeping it reasonably safe - for example, investing 5% of your assets into Bitcoin anytime in the last 5 years - or, The Balance gives the example of a certificate of deposit earning 17.2% in 1981.
The most famous and lucrative long-term investment fund of all time, the Medallion Fund, earned a bit more than 70% per year. This is considered to be the absolute all-time greatest, nobody else comes close.
![](https://steemitimages.com/640x0/https://i.imgur.com/oxsDgdi.png)
Now remember that Bitconnect is claiming to offer 40%, monthly.
Is there much more to be said?
This raises all the usual red flags. For one thing, if the Bitconnect team really can reliably generate 40% monthly returns off of investments - why would they offer it to the world, rather than simply investing with their own money?
The Medallion Fund wasn’t just profitable, it was also private. The same is true of most of the top hedge fund managers - I’ve heard of funds that require a net worth of billions of dollars just to get on the waiting list.
Yet BitConnect offers what they claim is the greatest investment opportunity of all time - to anybody, regardless of capital.
If you compare the tone and detail behind a blockchain project like SALT - who offer a seemingly viable blockchain lending system - to Bitconnect, it’s night and day. SALT is a well-reasoned system where the inner workings are clearly laid out for all to see.
Bitconnect offers no explanation. They just claim to offer the most insane returns ever because, essentially, blockchain is magic.
Seems sketchy to me. But hey - I’m just one guy. You can do your own research and decide for yourself.
Market History
As is tradition in these Token Investigations, let’s take a look at the market history of Bitconnect. Just for fun:
![](https://steemitimages.com/640x0/https://i.imgur.com/j9xl2zQ.png)
source: coinmarketcap
Up, up, up… But, since I think this token is a scam, I would never buy any of it.
Final Thoughts
I’m glad that I finally got to do some deeper research into Bitconnect.
Right now, it seems clear to me that the project is a scam. I came to this conclusion for a few main reasons:
(1) The returns are completely unrealistic - to an absurd degree, exponentially better than the greatest investment fund of all time to date.
(2) There is not nearly enough info on how these returns are generated.
(3) The tone of communication from Bitconnect seems very motivational/inspirational in a cult-leader kind of way. This matches the idea that it is a ponzi scheme. Particularly this video I linked up at the top.
(4) The history of the company is vague and the founders are anonymous.
(5) Did I mention how absurd the promised return rate is?
With that said, I’d like to throw it to you all - what do you think of Bitconnect?
![](https://steemitimages.com/640x0/https://i.imgur.com/hgkeIwR.jpg?3)
Ponzaaaaaaiiiiiiiiii
Good review. Whilst I agree it’s a clear scam, I don’t believe it’s a ponzi in the traditional sense. In a traditional ponzi, investor A is paid using investor Bs investment.
Bitconnect is no where near so simple. Investors have to pay in bitcoin, which is then converted to bitconnect token on the site. This step is pointless and adds nothing if the scheme was legitimate. These bitconnect tokens are then ‘le t’ to a trading bot which pays out returns in dollars. These dollars can be reinvested or converted to bitconnect tokens, then to bitcoin and withdrawn.
The bitconnect tokens serve no purpose at all as the trading bot is supposed to trade in bitcoin!
Unless of course you are bitconnect. Then having a currency completely under your control (due to a massive premine) makes perfect sense. If you pay out in a token that you completely control, you can continue for a very long time). If new investment ta slow down, simply restrict the supply of bitconnect token, increasing its price and no one will notice!
Therefore I do t think it is a traditional ponzi and could run for a long time. I invested a very small amount 6 months ago and despite supposedly receiving the dollar value of my investment t back, I am still well under in bitcoin terms.
This will crash at some point and will seriously damage the public perception of crypto when it does!
I forgot to mention that simple maths demonstrates how unfeasible it’s interest rates are. I saw a post (which I can’t find now) that showed that if you invested $10010 and the interest rate averaged1% and you reinvested all payments (perfectly feasible) you would be a trillionaire within 5 years! Does that sound realistic?
Just when you think the classic cons, like Ponzi schemes have played out and everyone knows what they are, along comes crypto to provide a fertile plot to plant them in, with plenty of uninitiated eager suckers to jump in. I agree with your assessment. I'd already pretty much come to that conclusion, but you provided some additional information. Thanks!
you are welcome!
I really don't know much about Bitconnect, but from what I have seen on Steemit articles there are two groups of people, the people who are involved in it and are just promoting it with a lot of hype and then a lot of people who say it will ultimately turn into a scam. I think like you that it is a scam which will ultimatley make a lot of people lose money, of course I would rather be wrong and have it work out good for the people who have put money in it. Also the Carlos video is really bad.
the video is SO bad
This is great. Thanks so much for this information @heymattsokol because newbies like myself have no idea who we can trust and not too since lots of this is so confusing, so I really appreciate you doing your own research and sharing with us your results.
you are welcome, glad it helped.
Yeah a YouTube looked on ponzi on Wikipedia maybe and it was 5 for 5 of signs of being a ponzi. Did the bitconnectx ico start yet?
I think it's starting in two days.
But what is it for? An ICO is supposed to be to generate income for a start up? Bitconnect is rolling in cash, has been operating for at least a year and is not developing anything(at least not declared anything). What is the purpose of this ICO?
Still plenty of people will buy in I’m sure.
the secret to all the crypto coins is just marketing. which ever one is marketed the best wins.
Eventually the rubber has to meet the road and these will have to produce.
New bitconectx ICO starts tomorrow. Buy Some if you want to earn some money!
The #1 one thing you missed is that BITCONNECT does not guarantee any daily % while classic ponzi's guarantee x amount daily. The second thing that you missed is that they have a trading bot that makes a % each and every day. What this means is bitconnect has a source of income AND can account for market conditions. There are many other things that you missed. Please explain how other crypto-currencies can shoot up 30%, 50% I have even seen 100% in a day gains without anyone screaming its a ponzi? Most cryptos are pure speculation at the moment; some don't even have a working product or business model. Whereas bitconnect not only has its own model but a working product. Perhaps I will write an article on it because I can;t mention it all here.
They don't guarantee but they do market it
"Up to 40% per month" if you look at their realtime interest chart you see that it is variable. What this means is it only pays out a % of earnings from the trading bot. If you look at their new road map you see in a few months the trading bot is getting an upgrade. The bot is legit and has been confirmed by Roy Murphy from the unoffcial Bitconnect channel. Now classic Ponzi's guarantee a daily %; how can you guarantee a fixed rate daily? the answer is you cant and thats why Bitconnect is not a classic Ponzi and is in fact sustainable. Like I said there is a whole lot more to their whole business model that makes them sustainable but I would have to write an article.
They guarantee 0.25% a day over and above ‘volatility interest’ if you invest over $10010.
That is true but they only pay out a % of the daily interest earned to account for the bonus interest. There is way more to it; BCC grew by 3700% in 2017; if you bought into their ICO you would have done well. Crypto-currency changes the game. Bitcoin goes up 1000% in a year and no one is screaming ponzi? Tron shot up %500 percent in a week and no one is screaming its a ponzi. Atleast BCC has some production behind their model other than pure speculation.
It grew because they own it all due to premine and can manipulate the price. The coin serves no real world purpose apart from enabling the operators to control the payouts completely. If they really were trading in bitcoin using a bit, why do they need the token? It would make more sense to accept payment and to pay out in btc!
It does make sense; In a ponzi scheme there is an imbalance between inflow vs outflow of capital. As soon as outflow is > then inflow then it collapses. Bitconnect premined their coin to keep a massive reserve fund. In addition inflow and outflow is balanced by having bcc and Btc. You can only buy Bcc if there are sellers and you can only sell bcc if there is buyers. Thats why I said crypto's change the game. In classic ponzies you had no way to balance inflow vs outflow. Bitconnect holds a lot of BTC and BCC; which would allow them to keep the balance. People don't understand that in order for there to be balance there must be BTC +BCC; ying/yang.
I agree it’s not a classic ponzi. The addition of BCC means that they have far more control as they pay out in BCC and they control the price of this relative to bitcoin. It will still collapse but that collapse could be some way off.
Although the recent ICO makes me think it could be sooner. Bitconnect certainly doesn’t need new funds for development so what is the ICO for?
follow and upvote my post:
https://steemit.com/bitconnect/@farah-kamran/do-you-know-about-bitconnect