Bitconnect and the collapse of the largest Ponzi model in crypto history
The recent Terra Luna event made many people think of the historic closing - the collapse of the giant BitConnect Ponzi model. So what is BitConnect?
What is BitConnect?
BitConnect (BCC) was a very popular crypto project in 2017. The project conducted an ICO on November 15, 2016 at $0.12 per BCC token. The price of this token peaked at $450 at the end of 2017, resulting in a 3750x return for ICO investors. It was because of such overwhelming profits that many investors have completely blinded and trusted it.
BitConnect did not invent and develop any technology, it was merely a lending platform. Investors through the platform could buy, sell or lend Bitcoins. Basically, it acted as a trust fund. Investors would send money to other people to do business and receive a profit of 30-40%/month along with capital after the specified time. This interest rate was too attractive and somewhat "unthinkable" for investors because the interest rate on bank deposits was only 7-8%/year. All investments were locked for a period ranging from 120 days to 299 days. This has caused many investors to not have time to flee from the burgeoning bubble called BitConnect.
Why is the BitConnect bubble so big?
There are two factors that make BitConnect explode quickly and attract a large number of users: The profit level is unbelievably high, and Bitcoin and the crypto market are at their peak.
A large number of investors have been blinded by greed, believing that the unbelievable profits are due to blockchain technology and Bitcoin.
BitConnect operated under a multi-level model or MLM, meaning that investors who refer and invite others to join the network will receive a corresponding percentage of the commission.
In a very short time, BitConnect has grown at incredible speed. Following that, a series of crypto projects with multi-level models similar to BitConnect were born.
BitConnect claimed that they could generate a daily profit of 0.5% to 1% using a trading bot that takes advantage of the volatility of Bitcoin (BTC). In October 2017, they reported an average daily return of 0.89% over the previous 6 months - although it is worth mentioning that this claim has no proof or basis. Interest was accrued daily and deposited into the user's BitConnect account every 24 hours. Investors could withdraw immediately (minimum limit 0.005 BTC) or reinvest in the platform.
1%/day means that with a capital of $1000 invested in BitConnect, after 3 years you will have more than $50 million. Does this number make you suspicious?
The Fall of BitConnect
Many experts have warned about the collapse of the Ponzi model that BitConnect created, including Vitalik Buterin - the founder of Ethereum.
In January 2018, the previous warnings came true. BitConnect announced its closure, and returned investors with BitConnect token - BCC. Investors receiving $BCC quickly sold out in the hope of recovering their capital. This caused the price of the BCC token to plummet from a peak of $460 to $20 and finally near zero.
Investors who joined early, and also withdrew early could receive a large return in their hands, but not everyone was so lucky. Many investors who did not run away were considered lost.
Immediately after the announcement of BitConnect's closure, their subreddit (now locked) was flooded with panic posts. “This cannot happen. I lost everything. EVERYTHING” - one user posted. Another post said: “800–273–8255 is the phone number for the Suicide Hotline. Money is not everything, your life is still the most important thing”. Articles like these show just how profound the consequences of BitConnect has caused.
The demise of BitConnect was the first wake-up call for investors in the crypto market. Although its signs of fraud can be quite obvious, such as: unreasonably high interest rate commitments, multi-level MLM model, minimum capital detention period of 120 days, but many amateur investors have been blinded by the profits the platform promises.
The crypto and blockchain markets have grown quite a bit since the demise of BitConnect. But this does not mean that the market is "cleanse" of scam projects. They have simply become more sophisticated. And investors will have to become even more cautious when deciding to invest in any project.
Published on May 26, 2022
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