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SEC warns famous crypto-currency backers (bbc.co.uk)
86 points by tooba 8 months ago | hide | past | web | favorite | 48 comments



If you guys want to check out the most ludicrous scam I've seen, take a look at Bitconnect. It's a 2 billion dollar literal (and I mean literal) ponzi scheme.

They promise 1%/day returns but only if you deposit your money on their platform for several months, they have a referral program with ridiculously high bonuses, and they have no real justification for the returns other than a bunch of technobabble about their "amazing" proprietary trading software. Of course, this doesn't explain why they don't just use it themselves without needing other people's money.

Also, the owners are anonymous.

I swear, there's so many red flags it feels like I'm playing minesweeper.

The most damning things about this scheme is their own marketing. Take a look at this video from their "conference": https://www.youtube.com/watch?v=dXI5eGJK-CY&feature=youtu.be...

For the sake of full disclosure and identifying my bias I do hold some cryptocurrency.


> https://www.youtube.com/watch?v=dXI5eGJK-CY&feature=youtu.be...

This makes "developers! developers! developers!" look like childsplay xD


I always wonder, when I see this kind of character, what happens each evening when they go back home and sit in their sofa, what goes through their mind?


I think Grandmaster Flash said it best:

> White lines; vision dreams of passion; flowing through my mind


I think this is even worse: these people are selling hosted Ponzi schemes as a service https://hyipsoftware.com

It is not a joke, there are real Ponzi schemes out there based on this stuff.


> Of course, this doesn't explain why they don't just use it themselves without needing other people's money.

Not that it saves Bitconnect's case, but taking in money can be legitimate, can it not? That's what every money manager and every bank does. Even if you could just trade with your own money, you might benefit doing your thing with a larger sum of money (even if you get just a small piece of the profits).

Edit: Hilarious, and uncomfortable, video, by the way.


That's correct, but this isn't the same!

I've seen some folks on reddit mention you can get 7% of someone's deposited money as a bonus if you refer them. Only a ponzi scheme can sustain that sort of aggressive networking. This sort of referral system has been done before, for GAWminers, Pbmining, and Hashie--all ponzi schemes which later collapsed, of course!


I think the trick is that you "get" that %7 as an account credit, but since you're never going to be able to withdraw the money...

these days all a ponzi needs to do is have enough shill accounts claiming that they were able to withdraw successfully, and drowning out those who complain.


> Not that it saves Bitconnect's case, but taking in money can be legitimate, can it not?

Only if the returns are low enough. If you had a way of making 1% a day returns, taking in large amounts of someone else's money would be really dumb.


Isn't the issue rather how your rate of return scale with the amount of funds under management?


The issue is that anyone with an investment strategy capable of earning consistent returns of over 1% per day, will (i) have no difficulty raising capital by offering much lower payouts to their investors (ii) will maximise their personal profit far more easily by paying out only a small fraction of returns to investors, and retaining the rest to reinvest for themselves rather than offering 1% a day returns and stupidly generous referral schemes to try to attract more funds to "manage".

Of course, the reality is that nobody earns rates of returns like this at any scale whatsoever except by robbing Peter's new funds under management to pay Paul


As the joke goes, Sharpe ratio is inversely related to size of marketing department.


That's hilarious, and also has to be true. Most successful firms don't exist outside of some mild exposure and a basic splash/landing page to entice potential candidates for recruitment.


A classic example: https://www.rentec.com/


Take a look at this video from their "conference"

Wait... is that room... empty?


Nah there's people there, not many it's set up with a lot of pretty large tables filling the space to make it feel more packed but there's definitely people there. Maybe a few hundred?

https://youtu.be/dXI5eGJK-CY?t=325

edit: This one is better and less seizure inducing. https://youtu.be/dXI5eGJK-CY?t=425


There are waiters, but not food. Maybe it was a free-drinks deal.


Hahahah... that video.

That kind of hucksterism is all by itself a very strong contrarian indicator.


> They promise 1%/day returns

No, if you read their terms they promise nothing. They basically say the whole thing could blow up at any minute. That said, they have been around for a year. Maybe you're thinking about their earnings calculator where they use the average returns from the past 6 months to calculate approximate future earnings (which is close to 1% daily).

That said, I'm not sure it's a ponzi scheme exactly. When you buy traditional stock, you buy them with cash. When you buy their coin (their "stock" if you will), you give them bitcoin. Then you lend their coin back to them. So now they're holding the bitcoin and their own coin that you lent back to them. Now they have two assets with value that they can pay you a small percentage of. Bitcoin tends to go up in value, which again they can pay you a percentage of, not to mention buying their coin in general creates demand which drives the price of that coin up too -- more growth that they can pay a return on.

BCC (bitconnect coin) is also traded on half a dozen exchanges. So, there are a lot of legit companies taking a gamble on it if it's a ponzi scheme. Also, ponzi schemes don't normally give you an asset in return that you can exchange elsewhere that is documented on a public blockchain; bitconnect does (unless you lend that coin to their trading bot).


> That said, I'm not sure it's a ponzi scheme exactly.

Red flags:

* Incredible, almost unbelievable returns

* A referral program to draw in new people

* Open-ended IPO, the platform has no limit on investment

* Incentives for individuals to invest more (seriously, you get higher returns for investing $10k versus $100, it makes no fucking sense)

* People are prevented from withdrawing their funds until they wait several months.

* Operators are anonymous

* No proof has been released that they're not a ponzi scheme. Why don't they have audited reserves? We're talking billions here.

Every single red flag shows that this platform is designed from the ground up to pay old investors with money from new investors. 1% a day is a completely ludicrous amount of money to make from day trading. It's such a shaky premise.

I'm sick and tired of people deflecting for these scumbags. And yes, it's happened before--it was a scam then, and it's a scam now. Here's a very much abridged list of other things that had those red flags:

GAWMiners, PBmining, Hashie, Paycoin, Lunaminer, Eobot, Scrypt.cc

Feel free to google them and tell me if they're still in business.


1% a day as a boast is unfortunately nothing anymore.

I've been seeing ads for Bitcy.biz lately, too. Take one look at their promises, if you will. They're advertising all over the place now because of their bounty program -- ie. they'll pay between 0.025 and 0.5 BTC for hosting banner ads, making blog and facebook posts, etc, and people are biting.

For example, they have one program where they promise that if you put in a minimum of 0.05BTC for a period of no less than 100 business days, you will returned 7000% of your original investment (including your original investment). At today's prices that would mean for ~$351 USD that you lock in for ~5months, you will be returned $22000.

They're actively trying to scoop up all of the stupid. That or there's some thinly veiled money laundering schemes occurring all over the place now -- which wouldn't surprise me at all.


Money laundering is highly likely, as is flight capital. There's billions upon billions of dollars looking to exit from countries like China and Russia. This is kind of a type of money laundering since the goal is to evade capital controls and/or taxes at the sending or receiving end.


It often looks that way to me, with so many shady ICO's as well. And let's not forget the Magnitsky Act which in North America is primed to prevent exactly those kinds of financial moves.


I agree there are red flags. I didn't say it wasn't a ponzi scheme, I said it wasn't a ponzi scheme "exactly". There is a unique difference with bitconnect, where the value is backed by a real coin on a publicly traded blockchain.

I'm saying it's NOT a scam, I'm just saying we don't know... it's something new that we haven't seen before and it's an interesting discussion.

1% payouts aren't all that crazy when they're holding bitcoin (up 10% from yesterday) and they're holding their own coin (up 8% from yesterday).


> There is a unique difference with bitconnect, where the value is backed by a real coin on a publicly traded blockchain

Ponzi mechanics have nothing to do with how the scheme's reserves are held.

> it's something new that we haven't seen before

Unfortunately, it's not. It's either a scam or a scheme so incompetent that it is practically identical to a scam.


It's unfortunate that there is no practical way to bet against this thing, because I would gladly bet it goes to zero.


Why only a warning? These greedy celebs know exactly what they are doing. Nail one of them and teach the rest a lesson.


Well, one advantage of a celebrity endorsement is that when the thing tanks, there's someone with money to sue. If you can show that (big-name celebrity) was paid for an endorsement, and didn't admit that up front, they're now a party to the scheme. We may see some big names go broke over this.



When famous celebrities get involved in speculation that is the ultimate sign of a bubble. Similar to when pro athletes like A-rod and paul pierce starting making day trades back in 2004. As usual mom and pop investors will be left holding the back. Regulation will be the nail in the coffin for crypto currencies in America which will probably be a debate topic for 2020 election cycle


> A-rod and paul pierce starting making day trades back in 2004

Things started souring in 2008 right? That gives me 4 years of runway, for my btc to reach the moon. With this growth rate, I'm ok with that.


Was running at my gym yesterday and overheard a guy with a Bluetooth headset walking and talking about etherium in the most hilarious terms. Time to sell.


In the last week, I've heard customer service agents and personal trainers talking about investing in bitcoin. It definitely feels like a bubble here.


the US Stock market and bitcoin is in a bubble, hedge wisely


People were saying bitcoin was in a bubble when it went up to $50. People who say this don't understand that a new economy is emerging, an economy that exists only on the blockchain. Traditional economies will be left behind.

Therefore, I do agree that the stock market is in a bubble -- in that sense the USD is in a bubble. It's not going to burst anytime soon, but do yourself a favor and hedge your bets... pick up some bitcoin so you've got a stake in the new economy when your value in the existing one crashes (you don't have to buy an entire coin).


Those of us who were saying that at $50 still think it's a bubble at $7000.


I respect your opinion, but I'd like to explain why I disagree. First of all, I think you'll agree that something is worth whatever someone else will pay you for it. So, if we're in a bubble then that means in the future, someone will not be willing to pay $7000 for one bitcoin.

But, with bitcoin's limited supply and increasing demand, and it's purchasing not being limited by credit availability (like housing, cars, etc) then chances are good it's demand will continue to increase and therefore its value will continue to increase.

If that doesn't happen then that means bitcoin's design is flawed -- it was literally designed to go up in value over time because it was invented out of frustration with fiat currency that nearly always goes down in value over time (inflation). The blockchain isn't the only brilliant thing about bitcoin.


I see much more evidence of unsophisticated investors buying for speculative reasons than for an emerging economy.


>People were saying bitcoin was in a bubble when it went up to $50.

A bubble getting bigger is still a bubble.


The SEC said any virtual coins or tokens bought by investors through an ICO were subject to the same laws governing the sale of stocks and shares sold via mainstream stock markets.

I thought the whole point of crypto currency was that it WASN'T regulated and so how is the government able to do this, let alone say this with any authority?


> I thought the whole point of crypto currency was that it WASN'T regulated and so how is the government able to do this, let alone say this with any authority?

Because nerds have this assumption that judges are beep-boop robots whose processors can be overloaded by a logical paradox or One Weird Trick, Lawyers Hate Him, and they are not.

The fact that it's "on a computer" means nothing to the judicial system. Just because they can't physically seize a pile of cash, or order a bank to transfer your balance doesn't mean that they can't make and enforce laws. They can order you to transfer money and if you refuse they'll throw your ass in jail for contempt. And they will not give a single fuck about "code is law" or the color of the fringe on the flag if you are trading in illegal securities. Crimes committed on a computer are still crimes.

Seriously, judges are human beings and while the law is certainly technical, they're not going to be impressed by an obvious attempt to end-run around a law. In many situations, merely attempting to do so is itself a crime (f.ex structuring transactions).

Do not fuck with the SEC. Screwing around with rich people's money is Serious Business.


> I thought the whole point of crypto currency was that it WASN'T regulated and so how is the government able to do this, let alone say this with any authority?

The SEC regulates securities. Cryptocurrency (arguably) meets many different definitions that would qualify at as one of several types of security (or future, or commodity). Therefore, the SEC has the power to regulate cryptocurrency.

To put it another way, the government already has authority. Trying to engineer around the authority of the government is the intent of (some) cryptocurrency designers - but it doesn't work that way. For all the same reasons that 'sovereign citizens' are wrong and (comically) misguided.

The government exists. It has authority. Denying either of these two things is utterly and totally delusional - not to mention childish and indefensible. If you really are trying to argue that the SEC has no authority to begin with - well, good luck with that, and have fun talking to your lawyer through bars or reinforced glass.

The debate is about whether cryptocurrency has been adequately designed to legally circumvent the legal requirements that would make it subject to current regulation. In other words, whether, according to the rules of the SEC, it does not meet the SEC's definition of what it regulates (or the FTC's, or the CTFC's for that matter).

As of now, the prevailing legal opinion is that it has not and that cryptocurrency meets many different definitions of security, future or commodity. Is it possible to change this? Possibly, but it is an engineering issue and it requires working within the bounds of the law - not just pretending that these authorities do not and cannot have actual jurisdiction.

More reading: http://www.morrisoncohen.com/siteFiles/files/For%20Blockchai...


By regulating it? The whole argument that crypto-currencies weren't regulated was always more of a marketing gimmick than fact. Yeah in their infancy (which we might still be in) regulators didn't care much about them, but it was always apparent that if any of them ever took off governments would step in. Here they've basically said, just because these commodities are taking a new form they still are a commodity and as such the existing rules around them must be honored. Whether that's fair or right? Who knows but it was an obvious outcome. They don't have to be able to control the currency itself to still enforce their rules because they have access to the people using it.


> I thought the whole point of crypto currency was that it WASN'T regulated

That's what the people with a monetary or ideological investment in cryptocurrencies say, because of course they would.


Cryptocurrency is about enabling value transactions online without the need for relying on a third party. You don't need to ask your bank to transfer your money and risk them saying "no" depending on who you're sending to, etc. You can do the sending yourself.

Bitcoin doesn't mean you don't pay your taxes.


The government doesn't regulate the USD or NASDAQ shares, but currencies, income, value, and ownership.

Cryptocurrencies are entirely regulated, already.


> The government doesn't regulate the USD or NASDAQ shares...

Yes, it most certainly, unequivocally does. (I believe this reinforces your point.)


I think the point was that even if stock exchanges were totally unregulated, normal laws and regulations could still be applied to stock ownership. (And even if they weren't, common law on property ownership still would)




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