SEC Sues Five People Over BitConnect Lending Program

A Securities and Exchange Commission (SEC) civil lawsuit has been filed against five individuals allegedly involved in promoting BitConnect’s “lending program”. BitConnect shut down it’s main lending platform operations in 2018 after regulatory warnings and allegations of fraud.

The SEC’s Civil Lawsuit

In a press release issue today on the SEC website, the body alleges that the individuals contributed to promoting and raising over $2B from retail investors in an unregistered digital asset securities offering. The issued complaint alleges that a network of promoters, four of the five defendants, offered and sold securities as part of the platform’s lending program without being registered broker-dealers, and without registering the securities with the SEC. This includes a flurry of “testimonial” style videos, the press release states, uploaded to YouTube to justify the merits behind the program. Promoters received commissions based around their success of soliciting funds, the complaint states.

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The fifth individual listed in the complaint is accused of “aiding and abetting” the unregistered offering and sales, as a liaison between BitConnect and the promoters, and as a company representative at events and conferences.

In the press release statement, New York SEC Associate Regional Director Lara Shalov Mehraban stated “we allege that these defendants unlawfully sold unregistered digital asset securities by actively promoting the BitConnect lending program to retail investors. We will seek to hold accountable those who illegally profit by capitalizing on the public’s interest in digital assets.”

Related Reading | Crypto YouTuber Draws Parallels Between SafeMoon And BitConnect

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The BitConnect History

The platform initially launched in 2016, paralleled with the BitConnect Coin (BCC); the company leveraged a so-called “trading bot” and offered high-yield returns to users with daily calculated interest. Within the following year, UK government bodies were demanding BitConnect to verify it’s legitimacy, and by 2018, the operations started to shut down following increased government pressure in the U.S.

The BitConnect Coin, at it’s peak trading at nearly $500, immediately dropped over 90% following the shutdown. State securities divisions had started to apply pressure right before the shutdown, including alleging that BitConnect was a Ponzi scheme, and that BitConnect was not registered to sell securities in their respective states. Within weeks, BitConnect’s assets were frozen following a temporary restraining order.

It was undoubtedly a dramatic rise and fall for BitConnect. Take a blast from the past with our NewsBTC write-up following the platform’s shutdown.

$XRP is the latest token to face SEC scrutiny. | Source: XRP-USD on

SEC Scrutiny

With continued emergence in broader crypto and blockchain technologies, platforms, and projects, the SEC has been active in recent years. Most notably, Ripple’s XRP has been at the forefront of SEC investigation, and is speculated to potentially developing a “Ripple Test”, as the Howey Test could be put to the max as part of the SEC’s review. Generally speaking, many see Ripple Labs as being plenty capable to overcome the SEC’s scrutiny, and Ripple CEO Brad Garlinghouse recently stated that Ripple Labs could very likely go public following the SEC’s resolution. The SEC is alleging that Ripple engaged in lobbying efforts to alter the public’s perception of XRP.

Related Reading | Here’s Why Despite SEC Charges, XRP Will Soar Again Someday

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Using Hash Rate To Examine Bitcoin Price Dips

Mimesis Capital: Inside The Event Horizon, Report #17

Why Hash Ribbons Predict Local Bitcoin Bottoms So Accurately

Theory: When the bitcoin price hits a certain level, selling pressure starts to exponentially disappear.

Bitcoin mining is a ruthless industry. Over the long run only the most efficient mining firms will survive.

The tendency for the mining industry to attract large amounts of competition combined with simplicity and beauty of the Bitcoin protocol could give us a method to predict local “price floors” for bitcoin.


Blockware Solutions, a bitcoin mining firm, released an in-depth report last year on how halvings directly affect miners and how much sell pressure is removed from the market post-halving.

Take a look at the entire report to get a good idea of how they reached their specific conclusions, but they estimated that USD-denominated forced miner selling would fall 70% after the halving with no change in price.

blockware solutions bitcoin prior post halving

This was likely a major catalyst for the current bull run.

How Does This Work?

Sell pressure drops due to miner capitulation.

Directly after a halving miner capitulation occurs because the block subsidy is cut in half, but the operating expenses of mining firms do not change.

Revenue being sliced nearly in half, while expenses remain unchanged, is obviously disruptive for any business.

This situation purges the most inefficient miners from the network. As a result, difficulty falls and the most efficient miners actually become more profitable. This free market process removes the miners who are forced to sell the most bitcoin to cover their expenses and rewards the most efficient miners by giving them more bitcoin.

The miner capitulation process occurs until sell pressure has decreased significantly. As price falls, sell pressure exponentially disappears due to the most inefficient (high forced sellers) miners being eliminated from the network.

When Can Miner Capitulation Occur?

The most obvious form of miner capitulation is post-halvings. A 70% reduction in sell pressure, as estimated by Blockware Solutions, clearly had a massive effect on the market price of bitcoin.

However, this inefficient miner purge occurs naturally over time and especially around price drops.

New efficient miners are constantly being brought online (better ASICs, lower electricity rates, fully financed publicly-traded mining firms, etc.). The most inefficient miners get purged when difficulty increases, electricity rates increase or price drops.

Simplified Miner Capitulation Bottom Examples

The first model is assuming peak hash rate and a bitcoin price of $60,000.

peak hash rate bitcoin mining

Looking at the model, the mining network is divided into five different layers.

The first layer is the most efficient and is roughly 20% of the total network. This likely would consist of publicly-traded firms like $RIOT, $MARA and $HUTMF that have access to unlimited amounts of capital available in public markets and that do not have to sell any bitcoin.

The fifth layer is the most inefficient and is also roughly 20% of the total network. At the current bitcoin price, their operating expenses are roughly 80% of their revenue (mined bitcoin). This means their margins are very sensitive to drops in the price of bitcoin, electricity price increases, rent increases and network difficulty increases.

Now let’s look at the second model. In this model, the price has dropped from $60,000 to $35,000 and the hash rate has also fallen 20%.

20 percent hash rate drop

The fifth most inefficient layer of the network has now been eliminated. Due to the sudden drop in the bitcoin price, layer five’s operating expenses ($41.4 million) now exceed the amount of bitcoin they can mine ($37.8 million). This causes them to shut down their operations and the remaining layers obtain a larger share of the hashrate.

The interesting idea here is that USD-denominated sell pressure decreased by 40%.

Last, let’s look at the third model. In this model the price has dropped from $60,000 to $20,000 and the hash rate has also fallen 40%.

40 percent hash rate drop

The fourth and fifth layers of the network have now been eliminated. Due to the sudden drop in the bitcoin price, both layer’s operating expenses now exceed the amount of bitcoin they can mine. This causes them to shutdown their operations and the remaining layers obtain a larger share of the hashrate.

The interesting idea here is that USD denominated sell pressure decreased by 70%.

Hash Ribbons

Hash ribbons are an indicator to help measure miner capitulation.

While the hash ribbon indicator is not perfect, it can illustrate points in bitcoin’s history where selling pressure starts to exponentially disappear.

The indicator releases a buy signal when miner capitulation has ended and price has cooled off. Charles Edwards from Capriole Investments explains hash ribbons in detail.

When sell pressure starts to exponentially disappear due to the dynamics of hash rate falling, we can be more confident bitcoin has bottomed.

Another interesting thing to point out is that the indicator never goes off near tops (2011, 2013, 2017). As the price begins to fall after every local top, hash rate continues to rise. Since hash rate is still rising as the price falls, sell pressure is likely increasing across the network until miner capitulation occurs and signals the bottom during a bear market.

This is how deep bear markets occur. Price gets way overheated for what the network, users and miners can sustainably handle. When price momentum shifts, miners are still being deployed because it is still highly profitable to mine bitcoin. Then you get a period where negative price action scares away new buyers, but more sellers (capitulating miners) still appear due to more miners getting deployed and increasing network difficulty.

Since bitcoin is the best monetary good ever created and we are watching the world begin to monetize it, it’s likely a fantastic idea to stack more sats when it begins to get exponentially more scarce, as indicated by hash ribbon bottoms. This is about to occur again for the twelfth time in history.

TLDR: Use hash ribbons to time bitcoin buys when price has dropped and sell pressure is likely exponentially dropping too.

This is a guest post by Mimesis Capital. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.


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S.E.C. charges 5 for illegally promoting $2 billion Bitconnect Ponzi

Three years and some unforgettable memes later, the Securities and Exchange Commission has announced that 5 individuals will face charges relating to promoting the Bitconnect Ponzi scheme. 

“The SEC’s complaint alleges that these promoters offered and sold the securities without registering the securities offering with the Commission, and without being registered as broker-dealers with the Commission, as required by the federal securities laws,” the release reads.

The promoters, including Trevon Brown, Craig Grant, Ryan Maasen, and Michael Noble are said to have “advertised the merits of investing in BitConnect’s lending program to prospective investors, including by creating “testimonial” style videos and publishing them on YouTube, sometimes multiple times a day.” In exchange for their promotional efforts, the influencers and representatives were paid on a commission basis.

The release also named Joshua Jeppesen as “a liaison between BitConnect and promoters.”

Shortly after the release, Trevon Brown (better known as Trevon James) posted a Tweet in which he did not deny the charges and said that the community would “rally” around him.

“We will seek to hold accountable those who illegally profit by capitalizing on the public’s interest in digital assets,” said Lara Shalov Mehraban, Associate Regional Director of SEC’s New York Regional Office in the release. 

The company, which collapsed in 2018, was widely accused on being a ponzi scheme from several analysts and observers, including Ethereum co-founder Vitalik Buterin. Last year, an Australian man was charged in connection with the company’s fraud. Many will be familiar with the project due to a now-legendary presentation from investor Carlos Matos:

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Multiple crypto lawyers have taken to Twitter to speculate on the long-term ramifications of this case. Gabriel Shapiro noted that even though the S.E.C. is targeting a known fraud in Bitconnect, it could end up being a “blueprint” for action against other DAOs.