Bitcoin fraud: How investors lost Rs 22,000 crore

It was too good a deal — earn 1% daily interest and double your money in 100 days. Too good to be true, hordes of rich investors in Gujarat realised a year later when the BitConnect platform folded up after pocketing roughly Rs 22,000 crore of their money in Bitcoin.
For many, it was a double whammy after the jolt of demonetisation. In fact, the Bitcoin craze had started in the state as people looked for safe ways to launder their piles of black money after November 2016.
“The transactions were anonymous, it did not require any proof, and best of all, it could be operated from anywhere in the world. A cryptocurrency boom started overnight,” Sunny Vaghela, CTO of an Ahmedabad-based IT firm, told TOI. Surat became the trade’s hub with numerous ‘equity brokers’, who juggled different cryptocurrencies for maximum profit.

Bloomberg also reported that most Google searches for laundering money in that period were made from Gujarat, and Indians were willing to pay up to 25% more for Bitcoin. Throughout 2017, Bitcoin gained value like nothing else. The price of one Bitcoin shot up from $900 to $20,000. It became a must-have asset. If you were greedy, you had to be invested in it.
While demand alone was driving up Bitcoin’s price, along came an offer that made holding it even more lucrative. BitConnect, a similar sounding but unrelated cryptocurrency platform, offered to pay 1% daily interest to Bitcoin owners, and more if they got other owners on board. Investors loaned their Bitcoin to BitConnect, which issued them its own token currency called BCC, and made all principal and interest payments in BCC as well.
It was a classic Ponzi scheme, and the fact that they were signing away their precious Bitcoin should have alarmed investors. Many experts had been calling BitConnect a scam from the beginning, but with the returns so high, investors kept their eyes tightly shut.
BitConnect’s scheme was simple. It had a fixed number of BCC ‘coins’. Their value increased with demand. Its sky-high interest rate kept pushing up demand, so the price went on rising until the securities boards of Texas and North Carolina ordered it to stop dealing in January.
“The investors got happy with notional gains. The coins, bought at $50-100, became worth $362 in a year,” said an investigator working on the case. But when the bubble burst on January 16 this year, BCC crashed to $2 overnight, and now it trades below half a dollar. Bit-Connect promptly repaid investors in practically worthless BCC, and walked away with their Bitcoin.
Altogether, BitConnect may have siphoned off more money than Nirav Modi, but police have not received many complaints, possibly because many of the investors used black money to buy Bitcoin. “So far, we have received complaints for cheating worth Rs 1.14 crore,” said Ashish Bhatia, DGP, CID (crime).
But some influential investors have tried squeezing out their money in unlawful ways. In March, Surat realtor Shailesh Bhatt complained that he was abducted by some policemen and made to transfer 176 Bitcoins from his digital wallet. About a dozen cops were arrested in connection with the conspiracy till July, and the name of former BJP MLA Nalin Kotadiya also cropped up in the investigation.

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