BitConnect Scam Explained (BitConnect Closing The Lending And Exchanging Platform)11 min read


On Tuesday, BitConnect announced closing its Bitcoin lending and exchange platform, following intense speculation that the crypto community was a Ponzi scheme.

In its statement, the company insisted this wasn’t the end for BitConnect, but its cryptocurrency had already dropped in value by more than 90% to a lowly $17.25 by Wednesday.

For those invested in BitConnect Coin, this is the bad news they were praying would never come. For the financial experts and BitConnect sceptics that predicted a crash, this is the inevitable sad ending to a story that should probably have never begun.

So let’s take a look at the rise and fall of BitConnect scam and what crypto investors can learn from the industry’s most controversial platform so far.

BitConnect In Layman’s Terms

BitConnect scam explained

Before we delve into the BitConnect story, let’s just clarify a few key definitions. Yes, these terms will be well-known to many of you, but we want to be 100% clear about what we mean when we use the following terms in this article:

  • Bitcoin: The first and best-known decentralised cryptocurrency.
  • BitConnect: A company that exchanges Bitcoin for its own BitConnect Coin (BCC) and provides a number of investment opportunities with its cryptocurrency
  • BitConnect Coin (BCC): BitConnect’s own cryptocurrency which can only be bought using Bitcoin or USD
  • A Ponzi scheme: A specific kind of investment scam where previous investors are paid off by the revenue made from new ones – generally accompanied with unrealistic financial rewards

BitConnect shutting down its lending and exchange platform is not a confession the company’s business model is indeed a “Ponzi scheme” – and we’re not in a legal position to say it is either.

Likewise, it hasn’t denied the allegations or even acknowledged them beyond citing two Cease and Desist orders in the US as a reason for shutting down its lending and exchange platform.

Before we go into further detail about the legal reaction to BitConnect’s business conduct, let’s explain how the company actually operates.

Essentially, BitConnect revolves around buying BitConnect Coin (BCC) and using the cryptocurrency to engage in one of three investment opportunities:

  • BitConnect Coin lending: You lend the company your BCC in exchange for substantial interest rates
  • BitConnect Coin trading: You buy and sell BitConnect Coin as the price fluctuates with the aim of making a profit
  • BitConnect Coin mining: Earn BitConnect Coin through confirming previous transactions completed using the cryptocurrency (mining)

So BitConnect positioned itself as a platform where you can not only buy cryptocurrency but also invest it to get a better return on your initial outlay.

Essentially, the promise was that your cryptocurrency would start earning money for you while you sit back on a recliner, sipping on a glass of single malt and chuffing on a Cuban cigar.

It all sounded great. For many, it sounded a little too great, and you only have to look at the interest promised by BitConnect to get an idea of where the scepticism came from:

BitConnect Scheme ShutdownSource: BitConnect

That’s right, for lending the company its own cryptocurrency (which you originally bought from it using Bitcoin or USD in the first place), you can enjoy up to 40% interest per month and 0.25% per day – what a deal!

Just to put that into context, 0.25% interest per day works out at a tempting 91.25% guaranteed return per year. Then you get a bunch of referral bonuses which could take your return up to 127.25%+ per year – all guaranteed, risk-free interest.

And that’s not even counting the “up to 40% monthly return” that could add another 480% to your annual return, which means you could earn somewhere in the region of 607.25% of interest per year alone.

So your $100,000 investment is guaranteed to almost double over the course of a year, and the chances are you’ll earn far more than that – possible half a million dollars in interest after just 12 months!

You’d be crazy not to dump all your Bitcoin or USD for BitConnect Coin at those rates.

Hint: Just in case the sarcasm isn’t coming across strongly enough in the section above, it’s too late to lose all your money in the BitConnect “Ponzi scheme” now anyway.

Experts Quickly Turned Against BitConnect

BitConnect’s investment proposition captured the attention of a growing number of Bitcoin holders. However, it also caught the attention of leading members of the cryptocurrency community and financial experts, many of whom accused of being a Ponzi scheme – and not a particularly sophisticated one at that.

In November last year, the UK Government threatened to shut down BitConnect unless it could prove its business model was legitimate. A notice from the British Companies House revealed

BitConnect was a cryptocurrency ponzi scheme

Source: British Companies House

The British Government gave the company two months to prove it wasn’t an investment scheme or face having its assets seised. The notice revealed BitConnect was registered by a British man by the name of Ken Fitzsimmons who held 75 percent of shares in the company at the time.

Until this point, there was no information on the anonymous people behind BitConnect and details remain sparse even now. The name Fitzsimmons doesn’t appear anywhere on the BitConnect website, and the platform remains something of a mystery in the days after shutting down its key services.

Earlier this month, the company also received two Cease and Desist orders from the Texas State Securities Board and the North Carolina Securities Division.

The mounting legal pressure building up against BitConnect affected the value of BCC, but the cryptocurrency kept rebounding as more people jumped on board. It wasn’t until the company decided to shut down its investment and trade platform that the value of BitConnect Coin plummeted.

The company says the choice to halt the platform was a direct result of the two Cease and Desist orders and escalating negative press surrounding BitConnect.

Here are the three reasons it gave for taking the move:

  • The continuous bad press has made community members uneasy and created a lack of confidence in the platform.
  • We have received two Cease and Desist letters, one from the Texas State Securities Board, and one from the North Carolina Secretary of State Securities Division. These actions have become a hindrance for the legal continuation of the platform.
  • Outside forces have performed DDoS attacks on the platform [sic] several times and have made it clear that these will continue. These interruptions in service have made the platform unstable and have created more panic inside the community

Despite bringing its headline services to an end, BitConnect says this is not the end of things for the company.

“This is not the end of this community, but we are closing some of the services on the website platform, and we will continue offering other cryptocurrency [sic] services in the future,” said in its statement.

Why Was BitConnect Accused Of Being a Ponzi Scheme?

Bitconnect ponzi scheme

Source: Bitcoin News

For the past year, BitConnect has been accused by financial experts and key members of the crypto community of being a Ponzi scheme, including the Ethereum co-founder Vitalik Buterin.

It’s not only the company itself that came under fire either, but also a number of influencers to promote the platform to would-be investors – in return for those tempting referral fees, of course.

We already know BitConnect promised some pretty outrageous returns for people’s investments, but perhaps soaring Bitcoin prices over the past year made the hype more believable, especially for keen investors looking to get in on the cryptocurrency action.

There were plenty of other red flags pointing towards a BitConnect Ponzi scheme, though. So what should BitConnect investors have been looking out for and how can you learn from their mistakes?

Lesson #1: Too good to be true

Above all, the investment returns BitConnect was promising should have given the game away from day one. Aside from the percentages being laughable, there’s no such thing as a guaranteed investment; the entire premise of investing relies on uncertainty and without risk there simply can’t be winners or losers.

In any normal context, last year’s Bitcoin surge would have been too good to be true, and this probably made a lot of people believe anything is possible in the world of cryptocurrency. Even still, the promises BitConnect was coming up with were so insane it’s amazing anyone signed up at all.

Lesson #2: Real businesses are pretty good at spelling

Rule #101 of copywriting is to get your spelling and grammar right, especially when you expect people to trust you with their money.

It’s fair to say the crypto community isn’t all that trusting of centralised banks (kind of the whole point of cryptocurrencies) but you’ll do well to find any spelling mistakes on HSBC’s website.

Yet the spelling and grammar on BitConnect’s website is no better than those emails from Nigerian princes promising millions of dollars if you only hand over a minimal release fee of a few thousand.

Lesson #3: The BCC investment process

Let’s pretend for a moment that BitConnect made less ambitious promises about the interest returns on its investment model. Let’s also give the multimillion company a break for not having an excellent command of the English language – after all, cryptocurrency is a global game.

Even still, the most alarming sign that BitConnect is nothing more than a Ponzi scheme is the investment model its promoting. It goes a little something like this:

  • You give BitConnect your Bitcoin
  • You get BitConnect Coins (BCC) in return
  • You then give these BCC back to BitConnect as an investment
  • BitConnect gives you nothing in return other than promised interest

Essentially, you’re giving BitConnect your Bitcoin and then giving it back the cryptocurrency it gave you in exchange for it. You’re handing over your Bitcoin and your BitConnect Coin in exchange for a promise – a promise that has now been broken that the lending platform has shut down and the value of BitConnect coins has plummeted.

Crucially, your interest payments are always made in BitConnect Coin. You don’t get your Bitcoin back, and your return is entirely dependent on the market value of BCC at the time of getting your payout – assuming you get one at all, of course.

Lesson #4: The BCC payout process

The best part is Ponzi element to BitConnect’s investment model, and this is where the Ponzi element comes from.

By paying off previous investors with the BitConnect Coin, new investors hand over (the price of which continually rose as demand increased) the system artificially increases the market value of BCC, which not only pays for the entire setup but also makes everything BitConnect holds more value.

With every BitConnect loan, the value of its cryptocurrency increases but investors never get to see the benefit until their contract is completed. Even then, your payout is in BCC, not your initial Bitcoin investment. Which means BitConnect has pocketed your Bitcoin and the inflated value of the BitConnect coin you gave back to them.

What Can We Learn From The Fall of BitConnect?

BitConnect close the exchange

The bad news for BitConnect Coin investors is that BCC value has plummeted more than 90% in the last few days and there’s little chance of this improving.

BitConnect says it will pay BCC holders $363.62 for every BitConnect coin, but numerous users say they are unable to take any money out of the site.

Some investors have already reported losing hundreds of thousands of dollars by investing in BitConnect.
As for the anonymous owners of BitConnect, they probably cashed out on the inflated price of BCC before closing the platform, which would make this a multibillion-dollar Ponzi crypto scheme.

Best of all, BitConnect says it isn’t done yet.

The day after closing its lending and exchange platform, the company released a statement announcing plans to create a new exchange system that supports multiple cryptocurrencies. It also says the drop in BCC value is due to it releasing all of its members’ coins at the same time and expects the value to increase once again.

It will be interesting to see if people continue to buy into the BitConnect concept, assuming it manages to stay in any capacity at all. For those who got burned by the BCC crash, this serves as a bitter lesson in cryptocurrency investment.

Above all, this unregulated market provides a new playground for scammers to capitalise on and there will be more cases like this in the future.

The good news (for those who didn’t get hit by BitConnect) is that the warning signs usually are pretty easy to spot. In the case of BitConnect, it was painfully apparent that something seriously dodgy was going on and we can only hope the number of people who lost more than they can afford is minimal.

For everyone else, this acts as an important reminder about the fundamentals of investing in volatile commodities – and knowing how to separate the scams from the genuine opportunities.


What do you think of  BitConnect scam and closing its Bitcoin lending and exchange platform? Do you agree that BitConnect was one of the biggest cryptocurrency Ponzi schemes? Let us know in the comments below!

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