Indian investors lose billions in Bitcoin scam

Karen Miller

Indian investors who have recently opted to stay away from the volatile stock market are throwing their lot into cryptocurrencies. Presently, there is a craze for crypto and the demand for these alternative currencies is at an all-time high.

Cryptocurrency is not regulated in India and this has allowed unscrupulous actors to offer investment opportunities involving digital coins. However, the Reserve Bank of India has banned all transactions related to cryptocurrencies.

Financial experts believe that demonetisation implemented by the Indian government in November 2016 had a major role to play in this decision. Many people had stockpiled money at home that they had not declared to the tax authorities. When the demonetisation occurred, they did not know what to do with this money. As a result, it prompted them to launder the money by investing in cryptocurrencies, and overnight cryptocurrency investment schemes flourished by promising investors significant returns. However, most were scams and these schemes petered out without a trace.

BitConnect was one such scheme that was promoted by a man named Satish Kumbhani. The cryptocurrency firm pledged to pay investors 1% interest on a daily basis on Bitcoins while doubling investment value in 100 days. The company was successful in attracting rich investors from across India. Most wanted to launder their money without getting caught by the tax authorities, and also earn money without worrying about paying taxes on it.

Sunny Vaghela, CTO of an IT firm based in the Indian state of Gujarat, said that the bitcoin transactions were anonymous and this was instrumental in starting a bitcoin boom in India. The majority of the so-called bitcoin investment firms were located in the city of Surat.

BitConnect created its own currency, BitConnect Coins, that investors received in lieu of bitcoin deposits. The firm promised a return of 40% or more. The aim was to increase the demand for its own currency. This led the firm to inflate the value of its currency from USD $50 to USD $362 within a year, added a US-based investigator who is involved in investigating the BitConnect scam.

However, the scheme fell apart after the company was hauled up to the securities boards in Texas and North Carolina. Overnight, the BitConnect Coins lost value and reached a paltry USD $2. Now, the coins trade for a meagre USD $0.5.

According to experts, BitConnect was a ponzi scheme. The promoters collected bitcoins – valuable throughout the world – and in return they gave investors a currency that had no value or backing.

In fact, from the very beginning, many investment experts were calling BitConnect a scam. However, the investors refused to believe this as they were promised high returns.

The Indian police state that they have not received many complaints about BitConnect. This could be because most investors were using the firm to launder ill-gotten gains, according to a police officer investigating the firm.

Later, the investigators found that an investor himself had kidnapped the BitConnect promoter, Dhaval Mavani, and his employee and demanded ransom.


Karen Miller

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