Too Good to be True - Bitconnect

Yesterday we discussed the big price correction in cryptos and left the final leg down ‘unnamed’ as it was not apparent at the time what the catalyst was.  With the benefit of hindsight it appears that was due to the announced closure of Bitconnect.  For those unaware, Bitconnect is a platform for Bitcoin investment which promised a roughly 1% daily yield on Bitcoin deposits subsequently leveraged out.  Like gold, Bitcoin does not yield a dividend, it is a pure store of wealth and capital gain play.  There have been some notable names calling Bitconnect a Ponzi scheme and it would appear they were correct.  The old adage “if it appears too good to be true, it probably is” has yet again proved true.

Ironically most of yesterday’s crypto rout was off news of more calls for regulatory measures in the global crypto space.  As a provider of big cap cryptos to serious investors we can’t take issue with such moves and suspect the broader market will come to that view too, and see regulation as a good thing to protect people from scams such as Bitconnect, dodgy ICO’s, and the like.

As we write this piece all 4 of the cryptos we trade are bouncing strongly off last night’s lows, maybe on that same realisation.  These crypto’s have fundamental value and regulation should not be ultimately feared whilst ever we are talking about decentralised, peer-to-peer, blockchain facilitated currencies that essentially and inherently manage the downside of regulation through centralised bodies (ala banks, ETFs, etc) as long as you deal in them directly.  Bitconnect is a classic example of the downside of looking for easy gains through an indirect vehicle.

Regular readers will be aware of our views on buying gold and silver through Exchange Traded Funds (ETF’s) as opposed to direct investment in physical bullion.  If you haven’t read these, read here and here before you even think about it.

The introduction of counter-party risk through the use of a derivative or other ‘paper promise’ platform in large part defeats the point of holding hard or monetary assets.  Whilst direct ownership is so very easy, it begs the question, why?

As a final note on “too good to be true” we should warn again of the dangers of buying bullion on platforms such as eBay.  Almost without exception when we see fakes come into our office they have been bought online through such means (see our earlier article on fakes here).  If the price seems too good to be true, it probably is.  Deal with a reputable, long standing bullion dealer.