The slow demise of BitConnect continues to unfold all around the globe. This week, Divyesh Darji, head of BitConnect operation in India was arrested in allegiance to his role in the millions of dollars of investment scam.
Times of India reported on Sunday that Darji was arrested this week at Delhi airport as he arrived from Dubai. He and his fellow conspirators are accused of chiseling around Rs. 88,000 crore from Indian investors seeking to find financial refuge during the government’s demonetization campaign in 2016.
According to Times of India, P G Narwade of Criminal Investigation Department of Gujarat police explained:
Darji was living in Dubai. A look-out circular was issued against him. The Immigration Department alerted us when he was on the way from Dubai to Ahmedabad, after which he was arrested today evening.
The Rs 88,000 Crore scam
In late 2016, the government demonetized all ₹500 and ₹1000 notes of the Mahatma Gandhi series. It would be the US equivalent of banning $10 and $20 bills. It was an effort to strangle the growing Indian black market, which the government claimed was funding illicit activity and terrorism.
The sudden announcement and the prolonged cash shortages in the weeks that followed created significant disruption throughout the economy, threatening economic output. Stock indexes threatened to drop in double digits and shortage of cash characterized a national state of panic.
In this circumspect, BitConnect and other related scams found to opportune moment to come up. They created questions in the public’s minds. Why keep money in fiat, when the publisher (government) can just decide to snatch wealth from an average Indian in the blink of an eye. Instead, take this train to the world of bitcoin which had it’s own media frenzy that promised forever returns.
Such public chaos made an opportune moment of entry for the BitConnect coin and BCC was launched at a release of 2.80 crore coins, out of which 1.80 crore were sold to investors. The operators in India, headed by Darji, held seminars and events in India and other countries of high interest promise. They assured of a daily interest rate of 1% on investment in BitConnect coins. The UK registered company launched BitConnect coins soon after the demonetization was announced, and by January 2018, when the company shut down, it’s value was worth $362.
BiConnect’s exit scheme
It wouldn’t be an overstatement to term BitConnect’s departure from the world market as the ‘biggest exit scheme in cryptocurrency’. It is perhaps fitting, that the Asian crypto giant operated from the Burj Khalifa tower in Dubai, the tallest building of the world and an absolute global business center. Likewise, everything about BitConnect was big, at the pinnacle and very, very powerful.
The company made it into the cryptocurrency fray with an initial coin offering (ICO) in late December of 2016 and swiftly progressed to become one of the best performing currencies of 2017. In the peak of it’s powers, Bitconnect boasted a market cap of over $2.6 billion and a value exceeding the $400 mark.
Guaranteed to earn investors up to 40% total return per month, BitConnect boasted an investment system based on the sum of initial deposit – the more cash you put down, the bigger and faster profits you could rake in. This meant hoarding $1,000 into your BitConnect account could net you more than $50 million within three years, which is around 1% interest compounded on a daily basis.
This suspicious business model was termed to be a Ponzi Scheme by many. One of the first people to voice concerns where Ethereum founder Vitalik Buterin. He said,
Yeah, if 1%/day is what they offer then that’s a ponzi.
— Vitalik Non-giver of Ether (@VitalikButerin) November 2, 2017
With bigger investments came greater scrutiny. After sometime, authorities had gotten involved and in November, the British Registrar of Companies served BitConnect with a strike-off notice, threatening to shut it down. Bitconnect downplayed the notice and announced of it only affecting a limited part of the company.
From there onward, it was a matter of face saving as they got served with a cease and desist letter from the Texas Securities Board, ordering the company to close down. It was followed suit by the North Carolina Securities Division.
In the meantime, BitConnect had come up with a creative approach for distracting users away from the litany of “bad press,” it was bombarded with.
The company had launched its own news segment – perhaps as a strategy to raise its SEO profile. Its content output was steady enough for Google to list the platform as a “legitimate” news source, displaying it in the dedicated news carousel on it’s search panel.
Though, applying band aids to critical wounds never solved the dilemma they had put themselves in. In January 2018, BitConnect announced that it was shutting down it’s lending and exchange services while the website, BitConnect.co, would operate for wallet services, news and educational purposes.
In the aftermath of the announcement, BitConnect collapsed almost in an instant, plunging all the way down to under $30 – a monstrous 96% decrease in value.