Crypto-thoughts 3 – BitConnect

Recently I see a growing number of people promoting Bitconnect. What is this Bitconnect thing?

Disclaimer
This article is my personal opinion based on facts collected from the bitconnect.co website. There may be much more to it than I am aware of rendering my conclusions wrong.

Bitconnect lending
I am looking at the Bitconnect lending program. It works as follows:

• you deposit Bitcoin (a minimum of 100 USD worth applies)
• at the Bitconnect trading platform you exchange your BTC for Bitconnect coins (BCC)
• you lend/invest your BCC
  What happens next is:
• depending on how much you invested, your BCC is locked (you can no longer access it) for a certain amount of time ($100-$1,000: 299 days, up to $10,010-$100,000: 120 days)
• during this time you will receive part of the profits of a trading bot (which will vary day to day) plus if you invested more than $1,010 a certain fixed percentage depending on how much you invested between 0.1% - 0.25%

Pretty good!
If you, for example, invested $1,010 your money will be locked for 239 days, during which you will receive daily payments of $1.01 (guaranteed) plus whatever the trading bot makes. You will have 3 wallets; a BTC wallet that you use for deposits and withdrawals, a BCC wallet that you use in the Bitconnect system and a USD wallet in which you receive your daily payments. The USD wallet can only be used to buy BCC which you can reinvest or trade for BTC.
If we look at the calculator provided on the site and use the 7 days average result (0.37%) we would get $3.737 (variable) + $1.01 (fixed) every day for at least 239 days. That gives us a total of $1,134.53 after 239 days and at that time we can also take our initial investment out. So if the BCC price does not change we would get $2,144.53. That is pretty darn good!
But that’s not all!

Referral program
If you refer someone to this system you will receive 7% of the money that this person invests. But if this person refers new people to this system you will receive 3% of that persons investments.
You will get 1% of level 3 and 4 referals, 0.5% for level 5 and the list goes on as you can see here.

At this point questions start rising
Now wait the minute. By now, everyone who gets referred is a level 10+ referred person. So if you invest $1,010, $70 will go to the one who referred you, $30 will go to the one who referred him/her, $10 will go to the one who referred him/her, etc. etc. at least $133.12 will go to the referral program, leaving your bot with only $876.88 to work with. You will also get a guaranteed $241.39. So in the (unlikely?) event that the bot can not generate any money, the working capital goes down to $635.49. Yet you will get your money back after 239 days, in BCC! Meaning that in this case the BCC price must drop by 37.1%, so the actual value that you get back is $635.49 (returned investment) + $241.39 (daily payments) = $876.88 (your investment minus referral fees)

But the bot will always make money
There is NO way that ANY investment strategy will always end in profit and never sustain losses. Yet this is what we are led to believe; the worst that could happen is that the bot does not make money, in all other events the bot will make money. In other words the bot can not lose!
That is impossible. Every trade has an entry- and an exit point and there is absolutely no way to tell in advance what will happen between those points. Your strategy can be based on a rise, in which case you will lose if the price goes down. Your strategy can be based on a rise or fall, in which case you will lose in case the price does not change (enough). There simply is NO strategy that will always result in profit. If there was there would be many more filthy rich people around.

But new money is added daily
New people get in every day, adding fresh money to the pot (or bot?). This money can be used to pay out others…. And this is what a Ponzi scheme is all about. The very high rewards in the referral program definitely pull my thoughts in this direction.

Conclusion
My most positive conclusion would be that the bitconnect.co site is misleading in presenting a too positive outlook on its investments, as is illustrated by this comment

Let me leave it here.
Please do your own research and draw your own conclusions.!