BitConnect, a ponzi scheme about to blow up
I have been wanting for a long time to write about Bitconnect, but I was too lazy. I was thinking, what a heck. There is too much dumb money following crypto land, let natural selection run it course. The recent news made me rethink that. Maybe I should share my two cents.
I never invested with them, withdraw or use their platform. As a matter of fact I don't need to do that to know that a business model is a pyramid scheme. Just a simple math calculation is enough.
What is a ponzi scheme
The definition for Ponzi schemes on Wikipedia says:
A Ponzi scheme is a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading. Companies that engage in Ponzi schemes 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.
Some ponzi schemes stay afloat for a long time, they provide so much returns so even most of old investors reinvest their earning to make even more money. With a constant stream of new investors and also a lot of old investors not cashing out, they can stay in business for a few years. The end is always the same, ponzi scheme organizers run with the money, and investors end up loosing everything.
Calling BitConnect a scam, people will ask for proof
There will always be doubters. I have seen many scams and tried to help people get out as soon as they can before it's too late. There is no way of convincing a person that have invested. First they are biased, and second thing they say: I'm making money. So I don't want to convince anybody of a scam, it is impossible. Anybody that asked me about investing with BitConnect I told them they have to be careful, and I'm not going to invest a single penny with them (or anybody that claims guaranteed returns). Some of them took my advice, some did not. As I said above, let natural selection run its course.
Why I'm convinced BitConnect is a ponzi scheme
Unlike real established companies, BitConnect does not provide any information who actually is running the company. Is this a red flag? BitConnect domain shows that it was registered on February 9th, 2016 and its private. Company does not have any real address where you can go and visit employees. Nothing. All they provide is online ponzi ROIs.
BitConnect compensation plan
BitConnect offers compensation plans for their investors. When you invest, BitConnect converts the invested Bitcoin into pre-minded BitConnect coins through their internal exchange system. BitConnect claims that has an advanced bot that trades bitcoin. The bot is so advanced that always makes money. They broke the first rule in investing "If you want to make money you have to take risks". Apparently, they found a way to make money without taking any risks. Beside that, the rate of return is around 1% a day, while the most successful investors like Warren Buffett or George Soros have an average of 20% a year. Lets see their compensation plan:
- Invest $100 to $1000 and receive up to 40% a month for 299 days
- Invest $1010 to $5000 and receive up to 40% a month for 239 days plus bonus 23.9% ROI
- Invest $5010 to $10,000 and receive up to 40% a month for 179 days plus bonus 35.9% ROI
- Invest $10,010 to $100,000 and receive up to 40% a month for 120 days plus bonus 30% ROI
Besides that, the real beauty of their ponzi scheme is that people can make additional money by referring other people to join. As wikipedia says, ponzi companies pay old investors not from legitimate business operations but from new money they get from new investors. They referal program is as follows:
- Level 1 (Personally sponsored members) – 7%
- Level 2 – 3%
- Levels 3 and 4 – 1%
- Level 5 – 0.5%
- Level 6 – 0.3%
- Level 7 – 0.2%
- Level 8 – 0.1%
- Level 9 – 0.05%
- Level 10 – 0.03%
- Level 11 onward – 0.01%
Can anybody make 1% daily return consistently.
The answer is simple, NO. As I mentioned above, the best of us, the richest people on the world like Buffett and Soros, made 20% a year and the whole world knows about them. And they are the best on what they are doing.
Albert Einstein said: the power of compound interest the most powerful force in the universe. That means that if you make for example 20% a year, over the course of a few decades you will become very rich if you reinvest your winnings. That's what Buffett did. This is great, everybody should do that IMO, but this also means that high rate of returns are impossible because simply there will be no money in the world left. One person can make all the money exciest.
How?
Currently there are 16,525,825 bitcoins in circulation. The total circulation will be 21,000,000. Let's say that you invest 1 bitcoin today, BitConnect will provide 1% daily reward as they do. How many bitcoins will you have after 5 years. 20, 50 or a 100? Not even close, after 5 years you will have 77,002,913 Bitcoins. 77 Millions Bitcoins, wow. The problem is 21 million bitcoins is the max Bitcoin that will ever exist. This is why it is impossible. If you want to calculate in excel with this formula =1POWER(1.01,1825)*. The number 1825 is the number of days, 5 years total and the number 1.01 mans 1% in coefficient terms
My conclusion
- The company doesn’t provide any information on who actually runs it.
- Invested Bitcoin is converted to BitConnect coins which are useless outside
- They promise high ROI, without external source to prove their trades
- They offer a lot for referrals, meaning they need new money.
It's up to anybody that choose to invest with the, if their website goes back online again.
Follows and upvotes are appreciated :)
Disclaimer: The information contained herein is not guaranteed, does not purport to be comprehensive and is strictly for information purposes only. This is not a financial advice. It should not be regarded as investment/trading advice.