The Fall of Bitconnect

What seemed too good to be true ended up being just that, since Bitconnect has (basically) shut down its operations. The failure of Bitconnect is a prime example that cryptocurrencies, though incredibly valuable, can also fail due to its unpredictability and almost non existent legal framework. Let’s take a closer look at what happened with Bitconnect.

Bitconnect is (or was) two things at once. First of all it is a digital currency that functions very similar to most of them. You have your wallet, you can send coins, these coins are quoted in exchanges, etc. Bitconnect is also the platform that creators have built to give the currency more life based on added services. In it you can make an exchange between Bitconnect and Bitcoin dollars, apart from an investment utility to make the currency profitable.

It functions in simple terms by investing the dollar equivalent of Bitconnect and they give you a daily percentage return. They had a Bot that analyzed the behavior of Bitcoin in the market and was in charge of exchanging it in a way that generates profits.

The accusations of Bitconnect being a pyramid scam started since its inception and that was one of the many reasons that they have been forced to close. What the BitConnect platform was doing is, supposedly, paying the interest with the money that the new users were lending. It’s like a circle, or rather, a pyramid.

Since its inception in January 2017, many were skeptical about Bitconnect services. Basically, it was necessary to send Bitconnect Bitcoin in exchange for Bitconnect Coin (BCC) in your exchange. Once you had BCC, you were guaranteed “up to 120 percent yield per year.” Users were told they were gaining interest by keeping their currencies “to help maintain network security.”

The loan scheme was the main reason Bitconnect became so popular due to its great promise of yields. To participate in the scheme, you had to buy BCC, which caused the token to reach a historical high of $437.31 per BCC before it plummeted after the close.

It is a matter of time until the other exchanges eliminate BCC from their platforms, by the appearance of things. We can only hope that many people do not lose money due to BitConnect. The Bitconnect pyramid scheme could have been prevented by paying attention to what happened in Texas.

The State of Texas prohibited the commercial activity of BitConnect showing signs of the fraud that the cryptocurrency was in its early stages.

The Securities Commissioner determined that BitConnect’s investments are securities, but were not registered as required by the Texas Securities Act and the Rules and Regulations of the State Securities Board. In addition, the company is not registered to sell securities in Texas.

What prompted the authorities to make this decision was the aggressive approach of BitConnect in the search for new customers, through ways such as online advertisements, social networks and increasingly frequent videos. However, the authorities also pointed out that the promoters and sellers were not registered as securities brokers.

It seems that Texas also accused Bitconnect of fraud and ordered the company to stop “participating in any fraud related to the sale offer of any value in Texas.” However, this is not the first time that Bitconnect receives an order of this type and has not yet issued a statement on the cessation and desist.

At the beginning of January of this year, the cessation of operations of both the company and its exchange and loan house was announced. An announcement that was not so surprising for part of the community, since during the month of November 2017 the United States and British authorities temporarily stopped the services of the company for violating the rules of registration of the state where it operated.

BitConnect’s former investors filed a class action lawsuit. The class action lawsuit states that BitConnect issued cryptocurrency tokens that were actually unregistered securities and that it raised additional funds through a “powerful Ponzi scheme.”

The complaint has been filed by six people on their own behalf, as well as that of all the other people who have lost their money investing in BitConnect. The six claimants stated that their personal losses amounted to $771,000.

Ultimately, the plaintiffs claim that, instead of actually generating revenue through the cryptocurrency trade, the platform actually used the funds of new investors to meet the expectations of the existing ones.Consumer Resource Guide

While part of the cryptocurrency community is celebrating the movement against BitConnect, which is seen as an aberration between projects and currencies, others believe that investing in cryptocurrencies is a personal matter. Despite the risk to personal finances, regulators should not try to protect users from their mistakes.

For these reasons, I’m a proponent of the regulation of cryptocurrency exchanges and of ICOs. I believe we must balance the need for regulation and compliance with the new efficiencies we find in crypto and Initial Coin Offerings. BitConnect shows us why we need some oversight.

On the other end, the US SEC’s over regulation of ICOs shows us what happens when the government targets something they don’t understand. ICOs have been forced out of the US because they are legally the same as IPOs, which makes them useless. The best ICOs are now in Cayman and Switzerland.

And the same goes for over taxation. The IRS is on fire and about to smash a bunch of crypto investors. Most savvy investors are setting up offshore structures to avoid the audit risk crypto now poses in the United States.

I hope this post on Bitconnect has been helpful. For more information on setting up offshore, please contact us at or call us at (619) 550-2743.