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BitConnect is a fast-developing project for Bitcoin lending. And if you look at its current market price, all looks quite cheerful. Except for the ominous "sell wall" last week, when the currency lost more than 30% within 24 hours. In just a few trading hours, BitConnect(BCC) shed value, from $140 down to $81 and for a moment as low as $52.

BitConnect Servers Down

On August 22 and 25th, the servers of BitConnect went down, allegedly for scheduled maintenance. Some transactions were delayed, and there were rumors of a possible hacker attack. The price chart shows a sudden drop in trading volumes coinciding with the drop in price.

Since Friday, the price of BCC has been incredibly volatile, going from the top to the bottom of the range. And the sudden event brought out again the usual worries about BitConnect- that it is a pyramid scheme that only survives because of the rapid price appreciation of Bitcoin.

BitConnect had other technical issues, urging users to rectify accounts with a negative balance.

What BitConnect Promises

BitConnect promises that if users exchange Bitcoin for their token, they can then lend BitConnect and gain interest. This is achieved by lending the coin on a peer-to-peer basis, without an intermediary.

But there is a catch- when users want to leave the system, they only get back their initial tokens at the rate in which they invested them. The catch is that since the beginning of 2017, both Bitcoin and BitConnect market prices increased much more than the program's lending profitability. And so some users lost their tokens instead of making gains. In other words, if you decide to withdraw from the BitConnect program, you will receive cash- but not the corresponding number of tokens.

[caption id="attachment_323" align="alignnone" width="1078"] source: coinmarketcap.com[/caption]

True, the market could have been different. But in the case of BitConnect, all the hype and marketing paid off and the token appreciated from below $10 at the beginning of the year to above $130. The movement of BitConnect was closely related to the gains of Bitcoin.

So for now it is no wonder the platform manages to make payouts in dollars, when the assets it holds are appreciating rapidly.

But even when deciding to leave the platform, you cannot just grab the cash and go. No, the payout is again in BitConnect or Bitcoin. Which then you would have to move to an exchange, if you need cash on hand.

So with the rapid price rise, a user who invested $1,000 in BitConnect would be forced to give up the tokens and then be forced again to buy less tokens at the new, much higher price.

BitConnect Exchanges

When you look at the markets where BitConnect trades, you can see that it is an echo chamber. Most trades occur on the proprietary BCC exchange, a vehicle especially created to mop up Bitcoin and give users access to the lending platform. There are other smaller exchanges, but NovaExchange is also suspicious, as most of the volume is also in the BCC/BTC pair. So the top 2 exchanges work very much like platforms to take in new customers for BitConnect. NovaExchange has two smaller pairs, against ETH and LTC.

Since BitConnect is a platform with a widespread marketing program, the only price pressure is the popularity of the system. There is no inflow of cash, no overseas interest, no other market logic than merely going on the platform and making quick gains.

So keep in mind that while BitConnect may be appreciating fast, in the end the whole valuation looks like one big marketing operation, a months-long pump. Once the popularity and the image start to crack, the decline may be quite rapid and final, since there would be no fresh capital to prop up the coin.

Who Is Behind BitConnect?

Often, a hot new coin will have a figurehead- a founder, a charismatic super-smart programmer. Not so with BitConnect. There is no way to find out who stands behind the lending scheme. No pictures, no Internet presence, just a mysterious name:

Mr Ken Fitzsimmons Uk (British) • Business Owner • Born in May 1978 (39 years old)
14 Jul 2016 → Current

Is the owener of:
Bittconnect LTD 10278342
The Panorama
Park Street
Ashford
England
TN24 8EZ

 

 

And there is one more huge red flag: there is indeed a name and address behind the company. But they lead to a shared office space building. Not that there is anything wrong with serviced office space, but this would make disappearance much easier. And it is the hallmark of shady penny stock companies, hundreds of them listed on an address in a featureless office building.

And the company was due to provide extra data on July 13th, which it has not done. But at least its only statement of incorporation is clear, stating that the company BitConnect was founded with one share with a book value of 1 GBP. Documents like this do not serve to clarify, but to conceal the real owner of the company.

BitConnect is spread out in Southeast Asia, with local sites in Japan and several other countries:

The Verdict on BitConnect

BitConnect is a traded token, and as such may yield speculative demands. In fact, it has had a price growth mostly on par with BitCoin in 2017. But past performance is no guarantee of future success. The marketing and affiliate programs for BitConnect follow a pyramid scheme, based on multi-level referrals. Also, markets for BCC are not free and have only one price pressure, the acquisition of more BCC to participate in the affiliate returns scheme. So if you still think the project has a return potential, you can invest your Bitcoin in it. But don't expect unusually high returns and never invest more than you can afford to lose. The success of BitConnect is also partially dependent on Bitcoin prices, and even with trading bots, market returns may vary.