Writing a proper and objective Bitconnect review is a rather difficult undertaking at this point in time, given the controversial nature of the operation. The debate regarding Bitconnect.co’s legitimacy is raging, and when we say raging, we mean emotions running high on both sides of the barricades. What exactly is Bitconnect though? Based on its official site (bitconnect.co), it is not easy to correctly answer that question
The website itself is quite unimpressive. It delivers weird bits of information in broken English, and it fails utterly to make its case clear for someone visiting the site for the first time. While we’re fully aware that the use of proper and grammatically correct English a legitimate operator does not make, it does indeed go a long way towards building that all-important initial trust.
Let us just leave that aside though and immerse ourselves into the finer details of what Bitconnect peddles, taking a look at both sides of the debate, on every issue.
The operation defines itself as a “self-regulated financial system”, designed to create investment opportunities for the cryptocurrency community. The operation features its own exchange, its own lending program and its very own digital currency, known as Bitconnect Coin (BCC). BCC was launched through an IPO – as it is fashionable these days – and it has turned out to be surprisingly successful over the last year or so. Suffice to say in this regard that from an ICO price of $1, BCC is currently trading in the neighborhood of $200. To call that investment a mind-boggling one, would probably be an understatement at this point.
This sort of wild success is what defenders of the project point to, when they make their legitimacy-case. It needs to be made clear though that this success alone says nothing about whether or not Bitconnect is indeed a Ponzi, as many allege. It only says that if it is indeed a pyramid scheme, it is quite possibly the biggest and most successful one of the cryptocurrency age. The reason why we are seriously examining the Ponzi-possibility is that there are indeed scores of red flags pointing in this direction, many of them so fundamental and obvious that they simply cannot be ignored.
So what exactly is it that Bitconnect does, and how do the above described three structural elements come together, when it comes to creating the investment ecosystem BCC creators seem so proud of?
The business model requires investors to make a bitcoin deposit with the site, to buy Bitconnect Coin directly from the exchange of the operation and to invest that BCC in a lending-scheme, which will then yield HYIP-like daily/monthly interest, eventually returning the investor’s initial stake as well. Investors are offered added profit for bringing new investors into the fold, whichever way they can.
There are several problems with this model, and we’ll take a look at all of them, closely examining every component of the above-described equation.
At the center of the Bitconnect universe, Bitconnect Coin (BCC) is something that – according to many – is not even needed in the Bitconnect business model. Detractors say its sole purpose to exist is to power a pump-and-dump scheme that will at one point most certainly come about.
While it is certain that the price of BCC is somewhat artificially pumped by the above described business model, the cryptocurrency has thus far been massively successful. Some posters at bitcointalk agree that the Bitconnect business model is a pyramid scheme, but they stand by the fact that BCC is indeed legitimate.
According to the Bitconnect website, there are three channels which influence the price of BCC: the Supply channel, the Demand channel and the Coin Distribution channel.
The Supply channel is based on mining and staking/minting. Mining will eventually be responsible for the creation of 2.6 million BCCs. Staking/minting will continue until the 28 million limit is hit on the cryptocurrency.
Those simply holding BCCs will earn an interest on it, which – for the first 6 months – will amount to some 10% per month, for a total of 60%. In all cases, to earn interest, traders need to lock up their BCCs for at least 6 months.
The Demand channel is powered by the exchange (where investors will purchase BCCs, to participate in the lending part of the investment scheme). BCC staking itself is a demand-generating engine. The skyrocketing price of the cryptocurrency cannot be ignored in this regard either.
The Distribution channel is powered by exchange-based trading (most of which admittedly occurs at Bitconnect’s own exchange) and OTC trading.
Some details about BCC: there are some 7.2 million BCCs circulating at the time of writing, and the total supply is some 8.2 million. The supply cap is 28 million (so it is finite) and the market cap – according to coinmarketcap.com, is currently $1.45 billion. This is indeed a rather impressive snapshot of a digital currency that so many claim is a scam.
The Bitconnect Exchange
The exchange is possibly the most straightforward component of the Bitconnect ecosystem. This is where the buying and selling of BCC occurs. According to some, the exchange has been used to generate fake trading volumes with coinmarketcap.com, by forcing the latter to add the exchange, where the lion’s share of BCC trading occurs.
This is where things become a little difficult to explain, and this is in fact where the heart and soul of Bitconnect’s value proposition resides. It is apparently all based on something Bitconnect call the “volatility software” which is essentially a trading bot, that exploits Bitcoin volatility. In order to be able to deliver the phenomenal interest rates offered through the lending program though, this trading bot needs to be unrealistically successful. This is what most Bitconnect detractors (and common sense-based people) dislike about the whole setup.
The purported volatility software cannot mathematically generate enough revenue off Bitcoin volatility to cover the interest given out by the Lending system. As some are quick to point out, if it were indeed able to trade Bitcoin as successfully as it is claimed to, the whole lending/cryptocurrency system built up around it wouldn’t make much sense. Its creators could gain access to virtually unlimited funds to run the bot, from private/institutional investors, who would doubtlessly jump on-board the moment they were provided with solid proof. Thus the need for the Lending scheme would simply not exist.