The BitConnect Story and How Easy it is to Fool Investors


The BitConnect Story and How Easy it is to Fool InvestorsIt goes without saying that the world of cryptocurrency is rife with scams and hacks but even by these standards, BitConnect is one of the biggest of them all, executing a classic Ponzi scheme and embezzling thousands of investors. What is most notable about the BitConnect scheme is that it was so clearly and obviously fraudulent, denounced at the outset by many within the community. The alleged BitConnect founder Divyesh Darji was arrested in Dubai in August 2018.

The launch of BitConnect

BitConnect was launched in December 2016 using the ICO model. It was highly successful all the way until the start of 2018, with all-time highs reaching USD 463 and a market capitalization of over USD 2.7 Billion. It was one of 2017’s best-performing cryptocurrencies according to data from However, its investment model and the premise upon which it actually generated value was highly questionable.

Investors were promised 40% returns per month, based on whatever the initial deposit happened to be. The larger the deposit, the bigger and faster the return. According to the statements made on the BitConnect website, a USD 1,000 investment would result in a USD 50 Million profit in 3 years. BitConnect promised a 1% return compounded daily, which amounts to around 3,800% per year. Vitalik Buterin put it rather succinctly via Twitter

“If one percent per day is what they offer then that’s a Ponzi Scheme.”

Despite this early warning from Vitalik and many others in the community, the scheme gathered momentum. BitConnect allegedly had a proprietary piece of software that enabled them to buy BTC at the highs and sell at its lows, without providing any details about how the algorithm operated. Additionally, BitConnect at one point reached a market capitalization of nearly USD 3 Billion. This means that buying and selling the asset would cause investment slippage, as the numbers would affect the price of the asset itself.

BitConnect used multi-level marketing methods where people who referred more people got a higher percentage of profits, in what is known as a pyramid scheme (slightly different from a Ponzi scheme but nearly always meshed together). These marketers would show snapshots of their profits on social media channels, without disclosing that their profits actually consisted of money made from referrals (the deposits of other victims in the scheme) and not from any type of proprietary trading model.

The end of BitConnect

It was January 2018 when BitConnect really started to crumble. A YouTube video of a company conference emerged where extremely strange behavior was exhibited by Carlos Matos. The BitConnect company shut down its exchange after receiving cease and desist orders from regulators in Texas and North Carolina, as well as a similar order from UK authorities. They released a statement on their website on January 16th (since taken down} stating –

“We are closing the lending operation immediately with the release of all outstanding loans. With the release of your entire active loan in the lending wallet, we are transferring all your lending wallet balance to your BitConnect wallet balance at USD 363.62. In short, we are closing lending service and exchange service while website will operate for wallet service, news and educational purposes,”

This effectively meant that investors could not withdraw funds and the BCC token crashed, the biggest Ponzi scheme in cryptocurrency history. At the start of January the BCC was worth USD 463, and by the end, it was worth less than USD 5. It currently trades under a US dollar. Every member of BitConnect is being sued, as are celebrities and YouTube affiliates who endorsed the product. Unfortunately, the damage done is global, extending to investors in India, Vietnam, Thailand, Indonesia, Cambodia, and the Philippines. Many investors lost everything they owned.

The anatomy of a Ponzi scheme

It does not really matter the type of environment; there will always be gullible investors who need to lose everything before they understand that there is no automated system that can guarantee returns. Any type of scheme that promises a return based on more investors entering the system is a Ponzi scheme, as it is not backed by anything except the investment from the people that buy in initially. Even by cryptocurrency standards, BitConnect was a clear and obvious criminal scheme. It had none of the following in its ICO, all of which are necessary –

  • Whitepaper
  • Description of goods and services
  • Community management
  • Third party verification
  • Location or registration
  • Transparent business model
  • No guaranteed promises of returns
  • Legal Documentation

And yet, what was clearly and obviously a Ponzi scheme fooled so many people. BitConnect was such a simple and classic Ponzi scheme it is hard to understand how it could have been so successful. Many of the investors were from less affluent regions (Thailand, India, Cambodia) who may not be as familiar with the anatomy of Ponzi schemes.

Cybercriminals may be in the wrong line of business, given how easy it is to create such schemes and fool investors.  Newcomers who are unsure what a Ponzi scheme is should take a simple definition from Investopedia –

“[a Ponzi scheme is] an investment fraud where clients are promised a large profit at little to no risk. Companies that engage in a Ponzi scheme focus all of their energy into attracting new clients to make investments. Ponzi schemes rely on a constant flow of new investments to continue to provide returns to older investors. When this flow runs out, the scheme falls apart.”

Digital Nomad with an interest in Zen and Blockchain technology.

Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.

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