A major cryptocurrency exchange known as BitConnect has shut down its trading platform and reverted to just a storage wallet following recent crackdowns by state authorities for the alleged unauthorized sale of securities. In a recent blog post published to the company's website, BitConnect also pointed to "bad press," which it says eroded consumer confidence in the cryptocurrency exchange, thus leading to its shutdown.
The announcement comes as the founders of both Ethereum and Litecoin (two popular counterparts to the popular Bitcoin cryptocurrency) accused BitConnect of running a Ponzi scheme, further damaging its reputation. The trading site has released its users' entire active loans, transferring all of their lending wallet balances to their actual wallets. BitConnect has also shut down its Bitcoin Cash platform entirely.
In explaining the reasons for the sudden shutdown, BitConnect stated that "continuous bad press has made community members uneasy and created a lack of confidence in the platform." The other elephant in the room was the two cease and desist letters that the company received, one from the Texas State Securities Board and the other from the North Carolina Secretary of State Securities Division.
"These actions have become a hindrance for the legal continuation of the platform," the announcement adds.
The BitConnect website also reportedly suffered multiple distributed denial-of-service (DDoS) attacks from "outside forces" that created interruptions in service for users. BitConnect admits that the entities initiating these DDoS attacks "have made it clear that these will continue," and that they were making "the platform unstable and have created more panic inside the community."
"This is not the end of this community, but we are closing some of the services on the website platform and we will continue offering other cryptocurrency services in the future," the company added in its announcement.
BitConnect's lending and exchange services dubbed as "shady Bitcoin investment scheme"
To be clear, it wasn't the simple buying and selling of Bitcoin by BitConnect users that landed the company in the crosshairs of multiple state regulatory boards. It was the fact that BitConnect had been operating a questionable lending and exchange program that allowed users to receive interest payments on their digital Bitcoin balances by lending or investing their virtual capital. To Texas and North Carolina, at least, such activity represented the illegal selling of securities without proper registration.
It was repeated negative press about this particular aspect of BitConnect's platform that ended up forcing the company to discontinue the lending and exchange element of its service offerings, which Next Web reportedly described as a "shady Bitcoin investment scheme" that "was mired in a litany of legal troubles, including cease and desist orders from the U.K. in November, as well as two more from the U.S. this month."
Just prior to the announcement, promoters for BitConnect suddenly began distancing themselves from the lending and exchange portion of the site. During this time, the BitConnect website had also suffered more than its share of server downtime, which reportedly kicked into high gear right around the time that the cease and desist letters started to show up.
The price of Bitcoin also took a plunge right around the time that BitConnect informed its users and the world that its lending and exchange program would no longer be operational. Not long after, however, Bitcoin rose right back to almost where it was prior to the BitConnect announcement, which suggests that it was this particular platform that's on the down and out, and not necessarily cryptocurrencies as a whole.
"It is unclear how much of the broader selloff was catalyzed by the news of BitConnect's woes , but judging by the sharp rebound in bitcoin and its digital currency peers in the past hour, the market appears to be re-normalizing slowly, realizing that the crackdown against BitConnect is not a broader attack on the cryptocurrency space but merely removal of some of the better known 'bad actors,'" reported Zero Hedge following the announcement.
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