Bitconnect faces first legal challenge as Texas issues emergency cease and desist order

Bitconnect : legit or not?
The Texas State Securities Board yesterday issued an emergency cease and desist order against Bitconnect Coin, charging it with making fraudulent sales of securities and operating without a state securities license.

As far I know, it’s the first legal challenge to Bitconnect’s operations anywhere in the world.

Bitconnect, which I’ve discussed at length earlier here, promises investors daily “interest” of up to 2% on funds loaned to its “trading bot.” Investors deposit Bitcoin, exchange it for Bitconnect Coin, which is then converted into US dollars for use by the mysterious trading bot. Investors may decide to reinvest their returns, or withdraw them as Bitcoin.

DISCLOSURE: I invested $120 in Bitconnect last May, putting in no other funds and earning no referral income since then. My current investment balance is $320 (through reinvestment) and total returns are just a bit over $380 (see image at left).

While Bitconnect has a small army of promoters and ardent fans extolling its money-making virtues, it has also been condemned as a ponzi scheme, since the operators have never explained how the so-called trading bot manages to offer positive returns every single day. More than likely, the critics say, the program is using recent investors’ deposits (and the platform’s exchange fees) to dole out to earlier investors.

Clearly, the Texas SSB suspects the same thing, without specifically saying so. Its press release states:

BitConnect has disclosed virtually nothing about its principals, financial condition, or strategies for earning profits for investors. It has not provided a physical address in England.

Despite providing no information on how it will make money for investors – including the algorithms behind the Trading Bot – BitConnect is touting its investments as a “safe way to earn a high rate of return.”

The Texas action follows Bitconnect’s announcement last week that it plans an Initial Coin Offering (ICO) — BitconnectX — on Jan. 10 in the USA for an as-yet-unspecified purpose. None of the links at the ICO website are working at this writing, and Bitconnect’s promoters seem to be as unaware of the ICO’s intent as the rest of us.

One possible reason, in my opinion, for this new ICO is improve Bitconnect’s cash flow: it needs to prop up its investment program with additional funds.

Bitconnect has been in operation since late 2016. Since then the value of the Bitconnect Coin (BCC) has soared to $415 and hundreds of millions of dollars have washed through the system, making some people very rich (assuming they have withdrawn their BCC tokens or Bitcoin from the platform, that is). But, in the third and fourth quarter of 2017, I noticed that the average daily returns were getting lower; there were fewer 1-2% return days and more 0-1% days.

Bitconnect’s own volatility software page supports my hunch. The six-month average return was 0.93%. The 30-day average was 0.84%. And the 7-day average only 0.7%. Judging from the one-year chart, there have been no over-2% days since 1Q 2017.

Bitconnect trading bot returns (Source:

Why would returns appear to be declining, when the value of Bitcoin and Bitconnect Coin have been soaring? Since no one can explain how the trading bot works its magic, one possible explanation would be declining number of investors willing to put money into the program — the death knell for any ponzi scheme. Without new money coming in, there’s less money to dole out to earlier investors.

The Bitconnect lending process

There have been other indicators the Bitconnect empire is fraying at the edges. Late last year, the operators revised the seven-tier affiliate rewards program peaking at a 7% referral bonus to a three-tier model peaking at 5%.

Bitconnect referral tiers (Source: Bitconnect affiliate marketing material)

The original roadmap from the BCC ICO proposed a Bitconnect-backed debit card (BCCPay) for 2017; that never came about, though the BCCPay website began accepting orders for the card on Dec. 1. There was also supposed to be a partnership with an outfit called Uquid for a debit card. Those cards also seem to be vaporware so far.

An ICO would be a desperate, but potentially lucrative means to prop up a failing Bitconnect empire. I’m not saying Bitconnect’s operators (whoever they are) plan to use proceeds from an ICO to raise money to pay out to Bitconnect investors as “interest,” but given the lack of transparency about the entire Bitconnect enterprise, I wouldn’t be surprised if they would.

Here is the Texas CDO.

Texas Emergency Cease and Desist Order against Bitconnect by John Wheaton on Scribd

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1 thought on “Bitconnect faces first legal challenge as Texas issues emergency cease and desist order

  1. Pingback: North Carolina joins Texas in issuing a cease and desist order against Bitconnect – Wheat-Dogg's Crypto-Info Pages

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