Guest Post was written by: Sean Mortberg, an aspiring tech writer and a student at the University of Louisville in Louisville, Kentucky.
This past month, the cryptocurrency world saw the collapse of BitConnect, one of its more dubious exchanges. At its zenith, the exchange had a market cap of $2 billion dollars but had built the reputation of being a Ponzi scheme, incurring lawsuits from American securities boards and doubts about the founders’ identity and origins.
The Texas Securities Board and the North Carolina Securities Division filed cease and desist letters against the exchange. They called for all trade and investment operations to halt until the firm registers with the proper securities board and gets approved as a “legitimate securities dealer or salesman.”
The way BitConnect worked was suspect from the beginning. New users would loan their cryptocurrency funds to the company, which would, in turn, promise massive dividends, going so high as 40% per month plus daily bonuses. The user community structure also reeked of fraud, with users referring users and receiving payment for referrals.
After months of bad press for its Ponzi scheme structure and multi-level marketing recruitment, an inconclusively reported hack, and cease and desist letters, the exchange shut down. January’s market plummet also caused damage, with the firm losing 90% of its currency value. During the shutdown, user accounts were locked, trapping investments in limbo and costing them, in one user’s case, at least $400,000 dollars.
Cryptocurrencies have and will continue to be seen as an investment volatile to market unpredictability, theft, and the downside of decentralization which firms like BitConnect represent. Many fear the talk of government oversight and steps countries like South Korea and China are taking in taxing and regulating the market. While the future is uncertain, one thing is. Crypto-trade is here to stay, and with over 8,000 markets, you’ve got to invest wisely and watch out for the BitConnects out there.
Learn more about the collapse of BitConnect from the infographic below, provided by Best Bitcoin Exchange:
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