BitConnect: Feet of Clay

Two years later, BitConnect emerged as a major fraud during the late 2010s ICO boom.

During the BCC token issuance, BitConnect stood as one of the most prominent Bitcoin communities. Crypto enthusiasts engaged both online and offline across Asia, with notable involvement from Japan. Remarkably, Brazil contributed a significant quarter of BitConnect's online traffic.

You can still find a company press release from November 2016 online. It provides information about the BCC tokenomics and mission, which eventually turned out to be a classic Ponzi scheme.

The initial plan involved releasing 4.8 million BCC within a year of the ICO. Of these, 2.4 million were to be distributed via the crypto platform Bittrex, while the remaining 2.4 million would be directly issued by BitConnect. The total supply was capped at 28 million coins. 

“BitConnect coin uses a special algorithm based upon both Proof of Work and Proof of Stake to secure the BitConnect Coin network. The moment you acquire BitConnect Coin it becomes an interest bearing asset with 120% return per year through PoS minting. All you have to do to earn with this method is to hold coins in your Bitconnect-QT wallet,” the company promised.

BitConnect Announces Its ICO Source: cointelegraph.com

But the devil, as usual, was in the details. Investors were not just advised to buy BCC with bitcoins and remain as token holders of BitConnect. To achieve the promised returns, crypto enthusiasts were required to loan their tokens back to the BitConnect platform. The longer the loan period, the higher the profit. There was also the opportunity to earn additional funds by bringing friends and acquaintances into the project. BitConnect claimed that the promised returns would be generated by a trading bot using artificial intelligence (recalling financial veteran Charlie Munger's assertion that AI technology is as old as he is). They also mentioned a special price volatility software.

Crypto investors were enticed by these promises, and the BCC project rapidly gained traction. According to CoinMarketCap, just a year after the ICO, the token hit a record price of $471 (while Bitcoin was trading at $20,000). At its development peak, BitConnect's market capitalization reached around $2.5 billion.

The platform was paying out substantial guaranteed returns. Eventually, its operations led market experts to voice that BitConnect was funding its loan interest payments with new collateral loans.

“I've been asked what I think about BitConnect. From the surface, seems like a classic ponzi scheme. I wouldn't invest in it and wouldn't recommend anyone else to. I follow this rule of thumb: “If it looks like a duck, walks like a duck, and quacks like a duck, then it's a ponzi,” wrote Litecoin founder Charlie Lee.

Vitalik Buterin, too, weighed in on the matter. 

Yeah, if 1%/day is what they offer then that's a ponzi,

he commented.

BitConnect's activities gradually caught the attention of regulators. In November 2017, the UK government issued a demand for the company to prove the legality of its operations. Early in 2018, the Securities Boards of Texas and North Carolina declared a halt to the company's activities, labeling it a Ponzi scheme.

Consequently, on January 17, 2018, BitConnect announced its shutdown. In its statement, the platform attributed its decision to “continuous bad press” from authorities, and DDoS attacks. 

A Sudden Plunge in BCC Price Source: techcrunch.com

“Legal problems with BitConnect saw its organizers exit the scheme, leaving investors with nothing and the value of BCC at virtually zero, where it has remained ever since,” CoinMarketCap explains. The U.S. Securities and Exchange Commission estimates that BitConnect scammed American investors out of a total of $2 billion.

Authorities have been unsuccessful in bringing BitConnect founder, Indian national Satish Kumbhani, to justice. Seven years post the fraudulent ICO, he continues to be sought after in both the U.S. and India. 

Satish Kumbhani Dupes Crypto Investors Out of Billions Source: youtube

In the meantime, American Glenn Arcaro, the top national promoter of BitConnect in the U.S., and his Future Money LTD, were ordered to compensate investors with $17 million. This sum will be distributed among about 800 victims of BitConnect.