By EconMatters
Feb. 12, 2018
Bitcoin had rocketed from $900 to almost $20,000 in 2017. We discussed how 20% of Bitcoin owners took out debt in this get-rich-quick gamble. It could all work out for everyone if Bitcoin were to continue its run towards $25,000 or even $60,000 according to some overly zealous predictions. The problem is Bitcoin has crashed to around $8,600 as I write this post today. Central banks like PBOC are moving to tighten oversight of bitcoin exchanges. Banks have banned purchasing bitcoins using their credit cards.
Yet another news tells a different side but equally disturbing story. It turns out instead of racking up debt to finance a bitcoin investment,
….Others invested in lenders, which accept real money for “interest” paid out in fringe cryptocurrencies
Quite a few coin companies have done aggressive marketing campaigns with ads and newslettera. For example, one such ad says “Turn a single $100 bill into a retirement fortune, in a matter of months.” A cryptocurrency company Davor Coin reportedly promised users on Jan. 31 “Lend us your money and you’ll have the chance to win $1,000,000”. All Davor Coin users had to do was loan Davor Coin their money. At the minimum, Davor promised huge returns on their loans, in the form of the company’s own kind of cryptocurrency DAV, not to mention there’s chance to win the $1,000,000 jackpot.
Another company Bitconnect, one of the largest crypto-lending companies, promised an impossible 1% daily return on investment. Then there are also companies advertise cryptocurrency-based title loans for cars.
Does that sound just a tad like a ponzi scheme? But not to the crytocurrency faithful crowd. One study suggests that buyers of bitcoin or crytocurrency are comfortable with a loan scheme in exchange for the digital money, which they believe will soar in value.
Davor Coin’s DAV plunged from $180 to less than $0.01 per coin right now. That means the lenders in the real-money-for-DAV loan scheme are now left with pennies on the dollar. Based on Facebook posts, one user said he loaned Davor $4,000 and was left holding $9. Another one said his $20,000 loan to Davor Coin yielded the equivalent of $23.50 when he tried to cash out.
The good news is that both Bitconnect and Davor Coin have both been served cease-and-desist letters from the Texas State Securities Board this year. Bitconnect is completely shut down while Davor has shut down its loan platform, but apparently DAV is still listed on separate coin exchange platform.
The bad news is that two scams down and many more are eager to take their places. Type in “cryptocurrency lending company” in Google search, and you will see what I mean. One such platform even boasts “These Bitconnect clones can help you make easy regular money like clockwork…You get paid on a daily basis anywhere from 3% – 20%.”
Judging from the recent act by the Trump administration to drop a lawsuit into a lender alleged to charge up to 950% interest, investors and consumers are left to their own devices not getting sucked into one ponzi scheme after another.
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