Getting poor quick
British-based BitConnect has all the hallmarks of a get-rich-quick scam, promising 91 percent annual interest and a moneyback guarantee.
Incredibly, tens of thousands of people have sent their hard-earned cash to BitConnect, attracted to it because of bitcoin’s phenomenal rise. Some of the investors are from Texas, and few are likely to see their money again.
The Texas Securities Board issued a ceaseand-desist order against BitConnect last week, ordering the company to stop operating in the state. But the order, which comes more than a year since BitConnect started operating, reveals not only the dangers of investing in cryptocurrencies, but the incredibly long time it takes regulators to catch up with these
Tomlinson from page B1 kinds of scams.
BitConnect began asking investors to trade bitcoin for its cryptocurrency, known as BitConnect coin, or BCC, in November 2016. Every time someone buys BCC with bitcoin, the value of BCC goes up, and it is purportedly now worth $4.1 billion.
The company then asks investors to loan it the BCC so it can lend it or invest it. It purportedly guarantees a minimum 0.25 percent interest a day, of a 91 percent return over a year, along with your initial investment, paid not in bitcoin, but in dollars.
There are five ways that BitConnect is making money on this scheme, that is, until bitcoin values drop or new investors stop buying in.
What’s wrong with this picture? First of all, Investors have no idea who they are dealing with. The Securities Board reports that BitConnect is intentionally failing to disclose the following material facts:
• The identity of its principals.
• Its physical address and its principle place of business.
• Its assets and liabilities, or financial information about the business.
• The persons or entities that developed BitConnect, including the number of BitConnect coins owned by these persons or entities.
BitConnect could shut down tomorrow and take its investors’ money, and it would be impossible to catch the company or recover the funds.
The board alleges: “BitConnect is engaging in fraud in connection with the offer for sale of securities.”
Texas was the first state to issues a cease-anddesist order against the cryptocurrency industry. On Dec. 20, the securities commissioner hit a bitcoin miner in the United Arab Emirates, USI-Tech Ltd. BitConnect is unlikely to be the last.
Search for information about BitConnect online and many traders identified BitConnect as a potential Ponzi scheme early last year. Nevertheless, BitConnect is still operating, and BCCs are still trading.
Government regulators around the world are making more and more noise about the need to step into the cryptocurrency markets. Eventually some company will steal billions of dollars from investors, and get away with it because of the international, unregulated nature of bitcoin. The subsequent public outcry will force governments to intervene.
When the crackdown comes, it will affect every cryptocurrency, including the big ones like bitcoin and etherium. Supporters who love these currencies because there is no government regulation will sell them off, and their values will collapse.
I admire the technology behind cryptocurrencies, and I believe it will change the way we do business in the future. But the days of unregulated currencies invented from thin air without regulation are numbered, and future investors will look back in wonder at the snake oil salesmen who operated under the guise of libertarian cryptocurrencies today.