Life

How BitConnect Became Cryptocurrency's Biggest Cautionary Tale

Before you invest everything you own in crypto, listen to the people who got scammed by this notorious Ponzi scheme.
May 4, 2021, 8:00am
Bitconnect
Image: VICE

Like many others, Nas first heard of the cryptocurrency known as BitConnect through a friend. He was promised incredible returns – upwards of hundreds of thousands of dollars – on his initial investment. But he was sceptical, fearing that it was a scam

“I did a lot of research and calls to verify it was legit,“ he says over Facebook Messenger. Finally, Nas decided to take his chances and invest a good chunk of his money.

Advertisement

Yet just as quickly as his profit rose to dazzling numbers, BitConnect and its entire website suddenly disappeared. “I deposited US$100,000 and after three months of compounding my profits, I hit US$350,000. I was four days away from receiving my initial US$50,000 before they closed down the website.”

Nas was only one out of many people who fell prey to BitConnect’s unbelievable promises. Originally launched in February 2016, BitConnect quickly gained notoriety as both a company and a cryptocurrency based on Bitcoin. It quickly attracted significant attention with its promises of fast riches, as well as criticism due to similarities to other Ponzi schemes such as Onecoin.

The premise was simple: users could exchange Bitcoin for BitConnect’s own cryptocurrency on its exchange. In return, they were promised quick and daily returns in US dollars on their investment. Investors were told that these dividends would quickly allow them to not only earn back the initial sum they invested within mere months, but make vast sums of profit on top of them. All of these interest transactions were also automatically logged by a trading bot that notified the user how much interest they made in a day.

“I was making anywhere to $1,500 to $3,000 a day,” says Nas. “It was the best feeling. I was able to cash out my profits daily, but I chose to compound it.”

BitConnect also employed a system of invites and referrals, where users could invite their friends and fellow crypto enthusiasts in exchange for financial bonuses. As with other Ponzi schemes, BitConnect’s promises had spread through different YouTubers and influencers, who described the incredible profits they were making from the cryptocurrency. Such videos were often key in persuading would-be investors.

Advertisement

“I tried with only about just AU$500 to see how it worked, and to see if I can withdraw it instantly,” says Robert*, a former BitConnect enthusiast, over the phone from Australia. “Everything worked… And then I watched YouTube videos and there were these guys, young guys, making a lot of money from just BitConnect. That got me more motivated.” 

He adds: “I was thinking, oh my god, I can make one, two, three percent a day from whatever I put in.” 

For people like Robert, the initial profits made from BitConnect interest were addictive and exhilarating, quickly prompting an investment of even higher sums of cash. As someone who previously invested in Bitcoin and saw its value skyrocket, Robert says he glimpsed a one-of-a-kind opportunity in BitConnect. 

“I started paying [my] whole pay into it. Everything I had. Everything,” he emphasises. “And it was paying me daily and I was just saving, I mean surviving from the daily payouts that I would get from the interest. That would be more every single day. I would be paying my mortgage, I would be paying my groceries, I would be paying everything through BitConnect.”

BitConnect came to represent a way to a better life. “If I put in AU$100,000, I would make a million bucks pretty much within six months of accumulation… I just had a kid, I wanted to have a great future, a bright future for our family.”  When he began making about AU$1,500 (around £845) in interest a day, Robert persuaded his wife to join him. She quickly proceeded to withdraw the entirety of her savings and put them in her own BitConnect account.

Advertisement

Their dreams of a new, better life evaporated in February 2018. After reaching the value of over US$470 per a single coin in December 2017, the cryptocurrency plummeted to below US$1. The value had crashed, taking Robert and his wife’s savings with it. 

“It just stopped. One day, we got the news that there were no withdrawals, that we couldn’t access BitConnect and we couldn’t sell. And I remember that day, I was really worried,” continues Robert.

Robert’s investment was effectively wiped out in a matter of days. “From there, we were just like what do we do? I’ve lost almost my whole life savings; my wife did too. I was very depressed.” 

The rapid crash of BitConnect and loss of millions of dollars’ worth of investment have quickly entered the ironic vernacular of the Internet and the cryptocurrency community, becoming an internet meme with the spread of a highly chaotic video from what was intended to be the cryptocurrency’s first annual conference in Thailand, featuring acrobats, dancers and live orchestral performances.  

With a whole YouTube sub-genre of breakdowns, remixes and “where are they now” videos on its most viral figures, like the incredibly overexcited investor Carlos Matos, it’s easy to downplay the crash of BitConnect as a meme casualty of internet and cryptocurrency history. 

But many individuals continue to feel its impact to this day – there are tens of Roberts in BitConnect groups all over Facebook, with users in Australia, the Philippines and the US having effectively lost tens of thousands of dollars in a matter of days.

Advertisement

The FBI launched an investigation into BitConnect in February 2019, and a man was arrested in Australia in November 2020 for allegedly promoting the cryptocurrency. But it’s unlikely that any of those who put their savings in the scheme will ever see their money back. 

“It is very difficult,” says Lewis Bloomberg, Commercial Manager at CYFOR, a company operating in digital forensics and corporate forensic investigations. “Because of the nature of how cryptocurrencies work and the ledgers work, they are highly anonymised. Which, of course, makes it more difficult to be able to trace assets as they flow between multiple wallets.”

While cryptocurrencies continue to develop and are increasingly accepted by big financial actors as a legitimate form of investment, their often-decentralised nature and the lack of legislation around tackling crypto fraud leave few options available for the average investor who’s taken a punt on the hope  of big returns. 

According to Dr. Nir Kshetri, a professor of management at University of North Carolina at Greensboro and an expert in blockchain and cryptocurrencies, the law has yet to catch up with crypto. “Using these old laws that were in for stock trading or the IPOs… it is difficult to apply,” he says. “That is the most difficult part here… [with] any of these fraudulent practices, they may not be breaking the law.”

Wannabe investors in cryptocurrencies, “shitcoins” and meme stocks are often warned to only invest money they can afford to lose. But it’s apparent that this is much easier to be said than done. Indeed, as Robert was desperately trying to withdraw his funds from BitConnect, he equally heard voices within the community who were persuading others to “hold it, hold it” as the price would one day “go back up”. 

And although his financial situation has fortunately turned around – no thanks to crypto – he has promised to his wife to never invest again. And honestly, he’s pretty relieved to be free of the cycle of investment-induced anxiety. “I was addicted to looking at the screen and seeing the prices,” he says. “But now I am released from all of that.”

*Name has been changed