Texas Bans the Activity of BitConnect

The pyramid earnings scheme masked as a lending platform received a cease and desist order from Texas authorities.

BitConnect, the most prominent and reviled cryptocurrency earnings scheme, has received a ban for its activities in the state of Texas, a letter from local financial authorities showed.

The Texas authorities are relying on the most widespread argument for the activity of cryptocurrency launching companies - regulation against unregistered securities. This is the chief argument for the order: 

"The Securities Commissioner found that the BitConnect investments are securities, but were not registered as required by the Texas Securities Act and State Securities Board Rules and Regulations. In addition, the company is not registered to sell securities in Texas."

What triggered the authorities was the aggressive approach of BitConnect in finding new clients, by channels such as online ads, social media, and most often, video. However, the authorities also pointed out the promoters and sellers were not registered as security brokers. 

What attracted attention toward BitConnect is also the recently announced ICO, a token sale event that would gather even more Bitcoin for the project. The start date of the BitConnect ICO is set to January 9. 

BitConnect has benefited greatly from the rising Bitcoin prices, as it manages to pay out earnings denominated in fiat without going bankrupt. BitConnect has also been careful to curb its multi-level referrals program, so that the scheme does not grow out of control and self-destruct, like traditional Ponzi schemes.

So far, BitConnect tries to manipulate the price of BCC coins to be at a fixed ratio against Bitcoin, thus ensuring a steady inflow of BTC from newcomers. After a sharp drop a few weeks ago, BitConnect rose again toward $400 as BTC recovered above $15,000.

But BitConnect still has supporters, pointing out that Texas is not actually accusing the project of running a scam. It remains to be seen if the company acquires the licenses needed to run its business in Texas. 

While part of the crypto community is greeting the move against BitConnect, which is seen as an aberration among projects and coins, others believe investing in cryptocurrencies is a personal matter. Despite the risk to personal finance, regulators should not try to protect users from their mistakes.