BitConnect, one of the most talked about player in the cryptocurrency market last year has shut down its lending operations and will be closing the BitConnect Coin exchange platform in five days.
The company said that it will release all the money or ‘active loan’ which was invested in its lending platform in BitConnect Coin (BCC).
“With release of your entire active loan in the lending wallet we are transferring all your lending wallet balance to your BitConnect wallet balance at 363.62 USD,” said BitConnect.
On Thursday, the company released another statement saying “the current BCC price drop is the direct result of us releasing all of our members’ coins at one time. We will do our best to honour the value of BCC as close to what it has been holding during past several months.” Post the communique, its price strengthened to USD 42 at the time of reporting.
The company blamed “bad press”, cease and desist orders from authorities and hackers for its decision to close the operations. However, the company assured the investors that it will keep supporting BCC. Notwithstanding the assurances, this effectively means that investors are staring at a huge loss.
$1.5 billion loss in a day
In order to understand, how much loss investors are looking at, let’s assume you had invested USD 10,000 on December 19, one month back on its lending platform.
Its lending business basically allowed investors to lend digital coins to borrowers. What, as an investor, you had to do was first purchase Bitcoins, then use them to buy BCC which can then be used to lend. The company promised up to 40 percent returns on investment (RoI) per month that is over one percent daily.
So, USD 10,000 would have got you approximately 23.4 BCC on December 19. Though, as per promise, your investment should have been worth USD 14,000 now. For the sake of calculation, let’s assume that your investment neither grew and nor depleted in one month.
Going by rates at which BitConnect returned your investments, you received 27.5 BCC. Going by the rates at which it closed on Wednesday, your investment is worth USD 596, an absolute loss of 94 percent.
Point to be noted is that the company had some presence in India as well and had organised events and workshops to attract investments.
Overall, the currency lost nearly USD 1.5 billion in its market cap in a day. Compared to a month ago, the loss in market cap surmounts to USD 1.9 billion. There are 7.8 million BCC circulating in the market out of the total supply of over 9.63 million.
Was it a Ponzi scheme?
The “bad press” which the company blames as one of the reasons behind shuttering down its shop refers to several cryptocurrency enthusiasts including Ethereum founder Vitalik Buterin who termed it as a scam.
There were various grounds on which these people red-flagged BitConnect, one of them was the lack of transparency, something which blockchain movement guarantees.
BitConnect is registered in the UK under BitConnect Ltd, as per Companies House in London, the British equivalent to Registrar of Companies. Suspiciously, the information available with it list one Ken Fitzsimmons as its director. There is no other official in the company and Fitzsimmons holds “75% or more” shares of the firm.
Curiously, BitConnect website does not mention this name anywhere, neither he has an internet presence. Moreover, the company has never filed any mandatory income related reports with the registrar.
In November, the registrar of companies had also released a showcase notice to the company threatening to strike its name off the register.
There are three more companies registered with similar names. Bitconnect International plc, with 14 officers including Le Thi Thannh Huy as Secretary. Even his or 13 other shareholder’s name do not feature on BitConnect’s website anywhere.
Others, Bitconnect Trading Ltd and Bitcoin AMR Limited (previous name: Bitconnect Public) are also registered in the UK, each having no declared connection whatsoever with BitConnect.
The second red flag was the promise of exorbitant returns. Steve Dell, one of the enthusiast in his Medium post explained, mathematically, how it could be Ponzi scheme. Similarly, many other people on Reddit and Twitter flagged the company.
Buterin, initially said that he did not know about BitConnect at all but when presented with stats, he agreed that it could very well be “a Ponzi”.
BitConnect has also been slapped with notices by two US authorities to stop its business. Texas State Securities Board served a notice to cease and desist terming its activities as “fraud”.
Another notice by authorities in North Carolina ordered “BitConnect, BitConnect LTD, BitConnect International PLC, and BitConnect Trading LTD to cease and desist offering unregistered securities” citing irreparable harm to public interests in letting it continue.
Despite, these red flags, the company mobilised investments using YouTube with promotional videos. Gullible and unaware investors put in a huge amount of money which has resulted in massive loss to them.
It seems, everyone who invested, overlooked the famous adage: If something sounds too good to be true, it is not true.