BitConnect, Alleged Crypto Ponzi Scheme, Shutters Its Lending and Exchange Services and Plunges 92%

Historically speaking, no investment class has delivered more consistent returns over the long run than stocks. Over time, they have demonstrated an average annual return of 7%, inclusive of dividend reinvestment and when adjusted for inflation. But the stock market simply can't hold a candle to the returns of cryptocurrencies of late.

Prior to the recent "hiccup" in cryptocurrencies, which saw them lose as much as $304 billion in aggregate value in three days, they'd been practically unstoppable. Over a 53-week stretch, the combined value of all digital currencies exploded higher from $17.7 billion to $835 billion, representing an increase of more than 4,500%. Good luck finding returns like that with any traditional equity.

Big gains lead to bigger questions

However, these returns also brought a lot of questions from skeptics. For instance, most skeptics question how the current valuations on cryptocurrencies are derived. Though the obvious answer is that someone else has been willing to pay a higher price, the deeper answer folks are looking for is what fundamentals and long-term tangible drivers are behind this move higher in cryptocurrencies. Blockchain technology is often attributed as being that tangible force, but it would appear to be many years away from any mainstream enterprise adoption.

Skeptics also worry about the potential for fraud given that cryptocurrencies operate in unregulated, decentralized markets. Transactions can, in some instances, be completely obfuscated, and the Securities and Exchange Commission has warned that its authority to go after potential fraud cases is limited in the cryptocurrency market since these transactions can be hard to trace, and can occur well outside the confines of the United States.

Until recently, skeptics crowing about the potential for fraud in the crypto marketplace had been nothing more than white noise, but that changed on Tuesday, Jan. 16.

Accused crypto Ponzi scheme BitConnect implodes

After being accused of running a Ponzi scheme on multiple occasions, BitConnect's development team announced on Tuesday that it was shuttering its lending service immediately and its exchange service within five days. Its tethered coin, BCC, plunged 92% following the release of this news to $19.28. Mind you, BCC had rallied from just $0.15 on Jan. 20, 2017, to as much as $479.30 on Dec. 28, 2017, according to

BitConnect was the perfect example of "If it seems too good to be true, it probably is."

The company's lending service allowed users to loan out their cryptocurrency in exchange for huge (and I mean huge) returns depending on how much they were willing to lend and how far down the road the loan matured. Of course, users weren't able to lend in dollars or convert their dollars directly into the BCC coin. In order to take part, users would buy bitcoin, and then convert their bitcoin into BCC, which could then be lent out. The fact that BCC was the only currency that could be lent out, and that all interest and return principal was paid in BCC, naturally helped push BitConnect's coin higher.

According to a chart posted on BitConnect's lending website, its "volatility software interest" promised returns of up to 40% per month, with loan amounts above $1,010 also netting daily interest of 0.1%, 0.2%, or 0.25%, depending on the loan amount. For example, a person lending $10,010 in BCC would earn up to 40% a month in interest because of the volatility software, 0.25% daily, and have their initial principle back after just 120 days. How are these returns possible? Supposedly, a trading bot and "volatility trading software" generated returns of around 1% per day, according to TechCrunch.

To boot, BitConnect also had a multilevel referral bonus program in place, which is where it gained even more notoriety as a possible Ponzi scheme that paid older investors out with fresh funds from new investors.

What went wrong?

Ultimately, BitConnect's press release pointed to a plethora of reasons behind its decision to shutter its lending and exchange services.

First, the BitConnect team blamed bad press, which "made community members uneasy and created a lack of confidence in the platform." This bad press included Ethereum co-founder Vitalik Buterin claiming that BitConnect was running a Ponzi scheme.

Second, BitConnect had received not one but two cease and desist letters. The first came from the Texas State Securities Board, with the second coming from the North Carolina Secretary of State Securities Division. The team noted that these cease and desist letters were a legal hindrance that made operating the platform a challenge going forward.

Finally, the team pointed to a series of denial-of-service attacks (DDoS) on the platform, and suggested that they'd likely continue. The interruption from these DDoS attacks made the platform unstable and created panic and concern within the community.

As a result, BitConnect plans to refund all outstanding loans at a BCC value of $363.62, which is the average price for the BCC coin over the past 15 days, according to While that sounds generous, keep in mind that BCC relative to bitcoin and the U.S. dollar, which is how folks made their original investment, has plunged by between 85% and 92%. In short, BitConnect lenders are still getting hosed.

Now what?

Believe it or not, this isn't the end of the line for BitConnect. According to the press release, the website will continue to operate as a wallet service, as well as for news and educational purposes. The BitConnect X initial coin offering is also still planned, with the eventual goal of listing BCC on that exchange platform.

But let's be real: The pizzazz of BitConnect -- it's out-of-this-world lending returns -- is now gone. What's left is the shell of a cryptocurrency whose only use has been effectively terminated. The BCC coin isn't accepted by any major merchants, nor does it seem BitConnect's team has any chance of partnering with any merchants following a greater than 90% plunge in its coin. Yes, investors have a pretty short-term memory when it comes to PR scandals, but it could take a long time before the BCC coin has any real-world use.

Long story short: If it seems too good to be true, it probably is.

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