Bitconnect shuts down following fraud allegations

Andrew Munro 17 January 2018

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A look back at the alleged Bitconnect fraud.

Bitconnect was in operation for over a year but has now shut down the bulk of its operations.

The closure follows months of legal troubles and accusations of fraud from regulators in Texas and elsewhere.

Bitconnect initially launched with the promise of large returns for people who bought into its coin, but quickly faced a hail of criticism and many accusations of being a pyramid scheme from prominent figures in the cryptocurrency community. Despite this, it continued to grow and attract traders. These accusations eventually turned into legal troubles and closure.

Was Bitconnect a scam?

Almost immediately after its creation, Bitconnect ran into problems, with people such as Ethereum creator Vitalik Buterin pointing out the following:

  • The wild promises made by the scheme seemed unsustainable. If it were true, it would mean someone could spend $1,000 buying in and then walk away with over $50 million after three years.
  • The owners of Bitconnect seemed to be taking steps to cover their tracks and remain anonymous. At a time when other cryptocurrencies were taking pains to be transparent and highlight their team's experience, Bitconnect seemed to be going in the other direction.

Bitconnect was soon plagued by legal troubles. The UK government was the first to step in on 7 November 2017, ordering the company to either prove its legitimacy or face dissolution.

This was followed by cease and desist letters from the state of Texas and North Carolina in which Bitconnect was ordered to stop "engaging in any fraud in connection with the offer for sale of any security."

Anatomy of a Ponzi scheme

A Ponzi (or pyramid) scheme typically promises its investors exceptionally high profits, usually through some type of legitimate-sounding scheme.

In pyramid schemes, the idea is to keep people buying in as quickly as possible with as much money as possible. As long as people kept giving the scheme money, it can successfully satisfy the few people who actually decided to withdraw their earnings and run.

By satisfying just a few people, a company can have some "It really works!" evangelists and persuade people to deposit even larger amounts of money and not withdraw it.

The eventual goal of such scams is often to shut down and run away with as much money as possible.

Sometimes they'll also dangle a hook on the way out the door, such as a promise that they'll return, or a statement saying that they've been unfairly maligned and will sort it out soon.

The idea behind this is to buy more time by planting seeds of doubt and maybe catch a bit more money on the way out the door from the die-hard supporters whose cognitive biases would make them inclined to put even more money into it.

Lessons learned

There are many cryptocurrency scams. If Bitconnect is one of them, it's one of the larger ones, and it delivers some key lessons.

  • Even the most blatantly obvious scams can attract thousands of devoted followers. In the Internet age, we need to redefine our idea of how many followers it takes for something to be legitimate. A million customers can be wrong. For some perspective, Bitconnect reached a market cap of $2.7 billion well after widespread accusations of being a scam.
  • It takes months for official actions to take place. Don't expect an immediate crackdown from authorities, especially not in cryptocurrency.
  • There's often forewarning. There was plenty of buzz around Bitconnect for a long time before it shut its doors. Even if you don't agree, it's still worth listening to the warnings. You'll always find arguments on both sides of the fence, so it's crucial to consider issues for yourself and take the time to make sure you actually understand where each side is coming from.

Before buying any coin, make sure you've looked for its dark side in the form of criticisms, scam accusations and other bad news. You'll almost certainly find it, alongside plenty of good news from brand evangelists. From there, it's your job to consider both sides of the argument for yourself.


This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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