Bitconnect scam: Important lessons from history

Marcin Woźniak, 3 min read
Last Updated: 20 January, 2023

The BitConnect scam was uncovered in January 2018. Investors lost more than $1 billion and is considered the largest cryptocurrency scam to date. The media attention, blatant fraud, and investor naivety are unrivaled so far. Read on, you will be truly surprised!

What was BitConnect?

BitConnect, or BCC for short, was a cryptocurrency that used the principle of a fraudulent financial pyramid scheme. It lent its bitcoins to BitConnect. These were managed by a ‘BitConnect-Bitcoin-Trading-Bot’. In return, the lenders received an extremely attractive daily interest rate. The daily interest rate generally varied between 0.3-4.0%. The BitConnect website states that:

“Once you own a BitConnect Coin (BCC), it becomes an interest-bearing asset with an annualised return of 120%. It’s that simple”

After a set period, investors received their interest and shares. Thousands of users trusted this promise, but why did it seem too good to be true?

Bitconnect Scam
Daily interest rates overview

It was surprising that no one was able to obtain information on how the trading bot works. All information on www.bitconnect.co, which has since been deactivated, was used for marketing purposes and not for the functionality of the legendary bot.

How much money did BitConnect investors lose?

BitConnect had a market capitalisation of $2.6 billion at its peak in January 2018. The price of the BCC token was over USD 400.

Bitconnect price Graph
Price drop

Of course, market data do not accurately reflect the volume of investments in BCCs. According to experts, about $1 billion was invested directly in BitConnect.

How did BitConnect pull off this scam?

With a financial pyramid scheme, from the English ‘ponzi’ scheme. High daily interest rates attracted investors with mediocre interest rates. Clever marketing and recruitment bonuses attracted other investors. BitConnect itself organised numerous seminars and conferences. Newly deposited investor funds were used to repay high-interest loans to senior members. No economic added value was created, only a redistribution of funds. Pyramid schemes work up to a certain point. The crash is the date when there are not enough new investors to repay the old investors’ interest.

Exactly this point was reached with great interest at the beginning of 2018. Investing in the financial pyramid was possible thanks to the BCC token. This token can be exchanged for Bitcoin, Ethereum, USD, etc. and many other cryptocurrencies. When interest payments and withdrawals were suddenly blocked and the BitConnect website was no longer available, many investors realised they had to sell their BCCs. However, the developers of the system were quicker and managed to sell their large positions before everyone else. This led to a sharp fall in the market. The BCC lost over 80% of its value in a very short time (see graph).

Who was behind this scam?

Nobody knows exactly who the sponsors were. In August 2018, Indian Divyesh Darji was arrested. He was considered one of the main suspects in the scam. John Bigatton was also linked to BitConnect. For a time, the Australian was believed to be the CEO. Shortly after the fraud was discovered, his wife disappeared. She was later found dead. There is speculation in the cryptosphere that the defrauded investors took revenge. To date, there is no conclusive evidence to support this assumption.

The Internet mocks BitConnect

BitConnect participates in numerous conferences and events and Mr. Carlos Matos is often responsible for the good humour of these conferences. This gentleman was considered one of the faces of the BCC fraud trial and was duly represented by the online community. See for yourself:

Numerous remixes were also produced:

The face of Carlos Matos is often used on social media and deals with fraud in the world of cryptocurrency.

Conclusion

The promise of very high returns, in the shortest possible time, without risk – it is a fairytale. Neither companies in today’s economy nor those in the cryptocurrency industry fall under this assumption. If this promise is backed by clever marketing, usually in the form of social dating systems, all warning signs should point to a scam. The BitConnect scam case is based on a financial pyramid scheme and was made public in the media in January 2018. This example should be a lesson to all gullible investors. It is important to question any business model and do your own research before investing.

Marcin Woźniak

In 2018, Marcin first encountered blockchain technology and Bitcoin, which instantly captivated his interest. He possesses a profound passion for technological innovation and the ongoing digitalization of the financial sector. Marcin eagerly anticipates the transformative potential of blockchain on a global scale and is enthusiastic about contributing to this revolutionary movement.