Many have called BitConnect a scam and a fraud; but do we have the right scam? Maybe BitConnect is simply a pump and dump.

Pump and Dumps

Pump and Dump stock schemes have been around for a long time. People would buy up an old gold mine, a patch of land near some oil wells, or a mostly disproven medical cure and then start a company. They incorporate, heavily advertise the shares pumping (raising) them up; then sell (dump) the shares to the public who want to own the next gold mine, oil company or cure for cancer. Buy, pump and dump. Repeat. Seems to be popular in the Initial Coin Offerings (ICO) now.

This has also been done among legitimate companies as well. They can accumulate an existing company buy a large number of shares, and then sell them to the public. They can artificially create interest in the company through buying up the shares themselves, attracting other investors as chart patterns break.

I feel pretty certain that BitConnect is a Pyramid and Ponzi scheme. But I also think we might have overlooked the pump and dump aspect of this security.

BitConnect has complicated inner workings.

First you convert your USD to Bitcoin, then send your Bitcoin to BitConnect. There they exchange the Bitcoin to BitConnect tokens. Then the USD VALUE of the BitConnect tokens is loaned to the company and given about 1% interest a day.

There are about a dozen red flags any rational investor should realize!

I believe Bitcoin is just used to make it easier for you to lose your money. I think the BitConnect coin is easier to do a Pump and Dump and I think the accounting in dollars extends the life of the scam.

So let’s just go into a little more detail. The BitConnect tokens are used as a way for new investors to pay off old investors in what is clearly a Ponzi scheme. This is one of the very definitions of Ponzi Schemes. Wikipedia has a great entry.

Bitcoin just makes it easier for the company to fold up and run off with your money. Talk about a great currency to disappear with.

The accounting in US dollars helps with a deflationary spiral. When you load the company the BCC coin, they sell it and take out a loan in US dollars for the book keeping. If you loan them 1000 tokens at $10. That is 10,000$. If in 10 days the “price” of the tokens goes up to $100 they give the US value of tokens back. That would 100 tokens. This is interesting accounting; you lent 1,000 tokens but got 100 back. This is what happens when you are dealing with scammers. This also supports the coin price rising.

But backing up again, the BitConnect coin has shot up to $131 on coinmarketcap.com. First off, the promoters control 98% of the coin. By my accounts, there is only 7,500 people at $1400 a piece into the scam.

Screen Shot 2017-09-29 at 3.45.47 PM.png
https://chainz.cryptoid.info/bcc/#!rich

That comes up to a measly 10.5 million. Yet the BitConnet market cap is now about 1 billion. That is because they only “sold” 1 or 2% of the tokens to the public. Now lets get back to the part where customers lend them tokens for 6 months to 300 days and then they only give back a small portion of the tokens. It drives up the price of BitConnect coins.

The Pyramid scheme is simply the front end for the pump and dump! They will pump up the price.

Now they actually own a whole bunch of tokens, which in theory they can sell at any time. This gives them a quick exit. They can sell those tokens at the last minute; from one account to another account and then claim to have lost all their money too! This could give the promoters a “cleaner” exit. They can claim to have lost money from their main accounts, all the while secondary accounts dumped coins, and they are rich.

How will it end?

First you have to get to the end of the idiots who are looking for ridiculous returns. When the inflow of suckers is less than the payouts; (about 1% a day) it will fail. The company has several potential exit strategies. “Fly by Night” and closing up shop and going back to live the big life in Vietnam and or Indonesia off your bitcoin is a good strategy. I am not exactly sure the nationalities of all the originators, and going back to your own country could be bad. The company still has 98% of the BitConnect tokens. So it could actually give those away on the way down. They are all going to end up worthless anyway. The company could also one day decide its algorithm no longer works, and give all customers all their tokens back, which they can then trade on the free market. The market would instantly crash as the tokens are worthless; but this would have a small level of “fairness” about it. It would make it easier to sucker people again. “We gave you your tokens back. We can’t help it they crashed afterwards.” “That is just the stampede of people exiting.” “When we gave them back they were worth this high point.” Does this logic hold up? Well, it doesn’t matter because logic has not gone over real well with this crowd. They don’t care about logic. They want to get rich quick.

Feelings of those Involved

When I started investigating BitConnecct I recognized it as fishy right from the start. I was sort of fascinated by how a Ponzi Scheme could work today, with the internet, free information and a block chain. One thing that has amazed me most is people promoting the scam don’t care. Some of them knew it was risky and are using it as a Las Vegas style of gambling. It gives them excitement and feeling like they are going to win. Some people seem to be set on getting in as many people in as possible. They believe it and are great salesmen. Some have made huge kickbacks, -I mean referral bonuses- on you tube for getting lots of other suckers to sign up with their referral code. Others have called me a “hater.” Some of the logic is crazy, You just hate it because you are not in it. Do I need to be in a scam to call it a scam? Others got in and want it to stay alive long enough to get out. They may know it is a scam now, have a case of buyer’s remorse, but the fact that they have a monetary incentive to hope it stays alive as long as possible; actually buys their silence! Incredible!

One of my favorite comments to date was a response to a comment I posted. A believer had just argued it was legitimate after reading several articles or warning signs. Realizing a lost cause I reposing with

“I am so glad you stopped by to look at the warning signs. Here on steemit we try to look out for each other. We are all adults, and can live with the consequences of the choices we make. I feel better better knowing people are aware of the risks.”

The response was...

“Obviously you dont get it.. and 9/11 is also inside job...”

Wow! Obviously he guy is totally right… I don’t get it. The amount of cognitive dissidence is huge.

I understand that Bitcoiners, are a bunch who hate big government, the Federal Reserve and Fiat currencies, but I do find it utterly amazing how much some people can fool themselves. I enjoy a good conspiracy theory too... once in a while, but wow.

While the BitConnect coin primarily trades on its own exchange I hope there is no exchange out there foolish enough to allow margin trading on the BitConnect Coins. Because if there was, the fraudsters could deposit a bunch of BCC, margin it up, buy bitcoin and then run off with the Bitcoin leaving the exchange to suffer a liquidity crisis and fail. Some of the exchanges may well already have liquidity issues because of things like this.

I have probably spent over 40 hours of my life investigating, thinking about and writing about BitConnect. Primarily, I did it for self-education. I wanted to see how these scams worked. That way I would know more of the signs when I saw them next time. I also wanted to share. If I keep a few other people from investing that could be worthwhile.

Anyway, it has taken me the better part of a week to get my head around how I believe the BitConnect Ponzi Scheme works. Block Chain doesn’t work if no one checks what is in the chain. Garbage in Garbage out. I don’t proclaim to be an expert here. It is crazy, because I have a couple of degrees in business, experience in the stock market, and previous experience investigating stock market pump and dump scams. Once this thing collapses someone will be like; why didn’t we see it coming? Well note: some of us did, a lot of us did. But people did not want to hear.

Well what are your thoughts? Does this explain BitConnect successfully? Am I missing a something? When do you think it will fail? Upvote and share your thoughts in the comments!