On Wednesday January 18th, the crypto market had one of the worst plunges in months, with over $300 billion leaving the market. At the time of this article, the Bitcoin price has since recovered, with the average price being just over $12,000. If you want to know my opinion on why this mass selloff happened, you can check out my most recent article on why Bitcoin fell under $10k. Something else very interesting happened as well; The BitConnect exchange finally went insolvent and collapsed under its own weight. This sent a wave of memes and ruined lives across the internet, and BitConnect issued a statement on why they shut their "lending program" down.
What happened to BitConnect?
During the mass selloff yesterday, the value of the BitConnect token fell from around $360 to only $8. The price has since recovered, with each token trading at around $45, and there is a big reason the price fell by over 90%. The lending platform/exchange decided to release all of their tokens at once while simultaneously suspending their lending program. Hundreds of thousands of people now have completely useless tokens, and the sell orders started to pile up on the few exchanges who supported the BCC token. People who invested too much money in the platform were left completely shocked as their investment collapsed.
Why did BitConnect do this?
This type of behavior would fit the criteria for being considered an exit scam. I am not going to explain in depth why I think BitConnect is a classic pyramid scheme, but you can read my other article on BitConnect to find out the details. The website released a statement on why it decided to suspend its lending platform;
The reason for halt of lending and exchange platform has many reasons as follow:
The continuous bad press has made community members uneasy and created a lack of confidence in the platform.
We have received two Cease and Desist letters, one from the Texas State Securities Board, and one from the North Carolina Secretary of State Securities Division. These actions have become a hindrance for the legal continuation of the platform.
Outside forces have performed DDos attacks on platform several times and have made it clear that these will continue. These interruptions in service have made the platform unstable and have created more panic inside the community.
If you can read through the atrocious grammar, you can tell this website is extremely shady. When they said continuous "bad press" has decreased confidence in the platform, they mean that powerful figures in the space such as Charlie Lee or Vitalik Buterin have called the website an obvious ponzi scheme. I think that the website was forced to shut down because the dwindling new referrals combined with the mass selloff, has left the website unable to pay its users. So they decided to release all the tokens and run. I cannot 100% prove this, but it seems like a plausible theory. The fact that they received two Cease and Desist letters from US regulatory bodies does not exactly help their cause either. The DDos attacks could be true for all I know, I cannot prove or disprove this. Now I will go through the official statement BitConnect released among all the panic that the sudden shutdown of the lending platform caused.
What did BitConnect do about this?
BitConnect admitted the sudden drop of the BCC tokens was due to them releasing them all at once. But they said "We still expect BitConnect coin (BCC) to gain its value back and you can hold your coins in the website wallet or transfer them to a QT wallet." I don't know how a suddenly useless token could gain its value back. If the value of an asset falls by 90%, subsequent demand would need to increase 900% just for the original holders to break even, so this is highly unlikely. They also made a statement that for the next 10 days, holders outside the United States can invest in the new "BitConnect X" ICO at a value of $150 per BCC token. So all United States holders lost 90% of their investment while all other holders lost at least 50% if they choose to invest in their ICO .This is assuming everyone received their tokens at a value of $362. They are also claiming to launch a superior exchange that will support different currencies which I am highly skeptical of. The website enabled trading of the token just hours ago, so this why the token rose in value from $8 to $45. However, thousands of people are out of thousands of dollars, and they took to Reddit and Twitter to voice their frustrations.
BitConnect was a painfully obvious example of a ponzi scheme, and I feel bad for everyone who was affected. This is why everyone who invests in cryptocurrency should do their own research. It was sad that BitConnect ads were on many major websites, which gave a false sense of legitimacy to themselves. Anyone who invests in any financial market should know there is no such thing as guaranteed easy money. The promoters of this scam should be thrown in prison. If this situation happened in any other market, the owners of the scam along with anyone who promoted it would be thrown in prison without hesitation. This might be a good thing for the crypto community, because after this scheme collapse, many people will be hesitant to put their money into shady projects. I knew this scam was close to collapsing, but I had no idea they were only one price dip away from becoming completely insolvent. The moral of the story, is to never get BitConrekt.
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