The downfall of BitConnect and BitSequence: a brief explainer.

Crypto-scams, class action litigation, and securities regulation, oh, my!

The story of millions of dollars in losses, and a class action lawsuit, starts with BitConnect allegedly hosting a once-legendary “trading bot” that was the core to a successfully advertised “profit-sharing” agreement with users willing to lend BTC to the venture. BTC was exchanged for the official platform currency, BCC, via a private exchange. Eventually,BCC became so popular that BCC was traded on several cryptocurrency exchanges. BitConnect was indeed able to pay out daily interest, and the ROI was capped at 40% per month, making it a profitable enterprise with payouts turning out quite nicely.  After nearly two years in operation, receiving more than any bank could deliver in interest, investors became comfortable with reinvesting everything gained.  BitSequence showed up very late in the game, borrowed from the BitConnect playbook, and staff posted about “trade signals” – specifically referring to price changes in BTC rates, leading investors to believe that a trading profit sharing arrangement was in play.

And then BitSequence showed up.  Ads appeared on Twitter offering 3% paid daily, with a standard warning to invest at your own risk. BitSequence was riding on the coattails of its controversial predecessor, BitConnect, which had clocked in nearly two years of churning out profits from an alleged “trading bot.” BitSequence was a scam.

The BitSequence TOS (no longer available as the site had shut down without warning) stated that each investment package on offer is was a permanent purchase – buyers do not get their principle back, in return for lifetime income of 3% daily ROI.  A tactic was developed by savvy investors: cash out the 3pct ROI on a small investment until the principle amount has been earned, and then reinvest future gains.  The minimum investment amount was $10.00 USD value of: BTC, LTC, ETH, XRP, and more, with interest paid out in the cryptocurrency that was used to invest.  Then one day it all disappeared – website, Twitter handle, etc.

BitSequence offered referral bonuses similar to BitConnect, offering 5% of downline investments and a smaller percentage of downline interest gains.  Investors did receive payouts each day, and flocked to social media to recruit friends into climbing aboard.

The cultural difference between BitConnect and BitSequence artwork is notable, along with the stories of their shut-downs. BitConnect was shut down after approximately two years of operation, on the same day that China had downgraded its credit rating of the US / USD.  The artwork on the BitConnect website had a distinctly Asian appearance and was based in China, while BitSequence targeted mostly Western countries and was based in the UK.

BitConnect’s downfall arrived shortly after two separate cease and desist demands were issued from securities regulation agencies in North Carolina and Texas, with more orders expected to arrive from other states. 
NC: https://www.sosnc.gov/vs2010/Soskb.Web.Content/media/1033/admin_order_bit_connect.pdf
TX: https://www.ssb.texas.gov/news-publications/4-billion-crypto-promoter-ordered-halt-fraudulent-sales

BitConnect suddenly started shutting down access to the site for hours at a time, citing “maintenance” work – presumably recoding the website to stabilize the platform and shield against DDOS attacks and, in the end, deal with urgent and unexpected “maintenance” of the servers.  Next, BitConnect claimed that the site had been under DDOS attacks.  Finally, a notice of pending shut-down issued forth, and BCC values bottomed-out and held out to close to $20 per BCC and then fell to less than $10 on various exchanges.

After the shut-down, BCC holders were offered a favorable buy-in rate to a new cryptocurrency, BitConnect X.  Interestingly, these ICO offers included a restriction specifically against US citizens.  See: https://bitconnectx.co/#faqs

BitConnect ceased operations (payouts, specifically) as of Jan 15, with BitSequence shutting down and completely disappearing approximately eleven days later, on January 26, 2018.  It appears that BitConnect was the canary in the coal mine, leaving BitSequence the choice between sticking around to be sued or disappearing with investors’ money. It is a wonder that no law firm has announced any investigations into the disappearance of BitSequence.

BitConnect became subject to litigation by Silver Miller, a class action law firm, and the lawsuit is limited to investors with losses over $250,000 USD, according to an email update notice regarding the case.  For more information on the class action lawsuit, Silver Miller has posted a landing page. See: https://www.silvermillerlaw.com/current-investigations/bitconnect/

This story is far from over; more information will be posted as it is discovered.

12 Feb 2018

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About Amy Barnes

Author has extensive experience in Retail, including two years as a supervisor. Educated in Psychology, Financial Accounting, Criminal Justice, and Programming. Work experience in Law Enforcement, Security (IT), Programming (REALBasic, SQL, VB, JAVA), Retail.
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