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Crypto lending site's shutdown renews Ponzi scheme claims
[PORTLAND] BitConnect isn't letting this week's closure of its cryptocurrency exchange and lending operations deter it from attempting to raise funds though another digital token offering.
That isn't sitting well with existing coin owners, who have seen the value of the tokens tumble by as much as 95 per cent since Monday. Critics on Twitter and Reddit have renewed allegations of fraud and are equating the company to a Ponzi scheme, where an operator pays off old investors by raising money from new ones.
In a posting on BitConnect's website Wednesday, the company predicted its tokens will rebound and promised its exchange will "work as usual" Thursday. The venture previously attributed the shutdown to "continuous bad press" about its platform, cease-and-desist letters from two states and attacks from hackers.
Despite the turmoil, people accessing the website are greeted with a solicitation from an offshoot called BitConnectX asking them to buy into an initial coin offering. That sale is restricted to buyers outside the US, according to BitConnect's Wednesday statement.
"We still expect BitConnect coin (BCC) to gain its value back," the company wrote. The price drop, it said, is "the direct result of us releasing all of our members' coins at one time." Fund manager Mike Novogratz called BitConnect "an old school ponzi" in a tweet in November that Vitalik Buterin, a co-founder of Ethereum, highlighted on Twitter. The company was inviting people to deposit Bitcoins in exchange for BitConnect coins, which could be lent to others at more than 40 per cent a month, it said. It didn't list contact details, or provide any information about its team, or have a white paper - which is something most startups issuing coins do offer. But people poured money in it anyway. On Jan 6, its market cap was US$2.6 billion; it's down to US$84 million now.
There was no response to a message submitted Wednesday through the platform's website.
Users on Reddit said Wednesday that they had trouble exchanging their BitConnect coins for Bitcoin. The company had said that it would return US$363.62 for every BitConnect coin users held, based on an average price over the past 15 days. BitConnect coins are trading at US$12.60, according to data provider CoinMarketCap.com.
Mike Miranda, who invested about US$300 into BitConnect, said he's been unable to take any money out of the site.
"I was always highly skeptical of it," said Mr Miranda, a project manager for a construction company in Raleigh, North Carolina. One red flag, he said, was BitConnect's offer to pay people more money if they brought friends to the site.
"BitConnect was a known Ponzi scheme, pumped over the past year on the basis of a 'greater fool' willing to buy the token at a premium," Lucas Nuzzi, an analyst at Digital Asset Research, said in an email. "We have always been skeptical of the token's true market capitalisation, as the majority of the volume was driven by BitConnect's own exchange, leading us to speculate whether the price and volume figures were accurate at all. The cease and desist orders issued by Texas and North Carolina are great indicators that prosecutors are not going to let widely known schemes to operate freely."
BitConnect is just the latest ICO to blow up. Last year, Munchee Inc refunded investors in its ICO after Securities and Exchange Commission intervened. The SEC also take action against PlexCorps for selling PlexCoin, offering a 1,354 per cent profit in less than a month. Some ICOs have simply lost much of their value, after their founders and early investors cashed out. Others were scams, in which criminals copied someone else's white paper and website, and watched the money pour in.
"Hopefully people will do more research before they throw their money at an ICO," Mr Miranda said.