SEC has charged five individuals with promoting BitConnect. This is digital security offering that it claims was unregistered and raised over $2B+ from retail investors.
Davor Coin promised its users that if they lend them their money, they’d give them $1,000,000. The platform was initially funded by optimists who poured money into it, but one week later they received a cease and desist letter from Texas.
Many people borrowed money to buy cryptocurrency as the value of the currency soared during 2017. Others invested in lenders such as Davor Coin, which accepts real cash for “interest” paid in fringe cryptocurrencies. The lending scheme is viable as long as cryptocurrency values continue to rise. But cryptocurrency prices are plummeting and lending companies are slashing and running cash or being slapped with cease-and-desist letters from government regulators alleging securities fraud.
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Davor Coin was high one week before Wednesday’s closure.
“WELCOME TO THE “BE A MILLIONAIRE” LENDING Lottery!! The company shouted in a Medium posting, “WELCOME TO THE ‘BE A MILLIONAIRE’ LENDING LOTTERY!” “We are offering an unbelievable $1,000,000 to a member of the Davor community as well as many other prizes!”
All that was required to lend Davor Coin their money was the user. Even if customers don’t win the million-dollar jackpot, the Davor coin promised huge returns on loans through its own cryptocurrency.
While the purchase might have been risky for potential buyers, Davor Coin found it to be a very lucrative investment. According to at least one study, buyers of cryptocurrencies like bitcoin feel comfortable entering loan programs for the digital currency. This is because they believe that it will increase in value.
In a December survey, 18 percent of respondents stated that they had borrowed money in order to buy bitcoin. 22 percent of bitcoin buyers who borrowed money to purchase bitcoin told LendEDU that they have not paid off the debt. Over 70% of bitcoin enthusiasts who have not paid off their debts on bitcoin said that they agree with the statement “I think owning Bitcoin is worth the interest expense.”
discussions are common in cryptocurrency forums. For example, this thread contains a user who claims he has taken out a title loan on his Honda to buy cryptocurrency. This currency will increase in value until he is able to buy a Lamborghini. companies, such as Shift cash, advertise crypto-based title loans for automobiles.
“More than 70% agreed with the statement that ‘I believe owning Bitcoin worth the interest expense’.”
It’s a buyers’ market for people who want to spend money on digital currencies, even if they are worthless next week.
Davor coin also had another reason to be hopeful. A few weeks before Davor coin announced its million-dollar jackpot, another company was shut down.
Bitconnect, a crypto-lending company, has been long accused of being an elaborate Ponzi scheme. Its aggressive marketing encouraged customers and others to sign up for the company. The company’s management was completely anonymous. Experts scoffed at their promises of a 1 percent daily return, but they were completely anonymous.
Investors continued to loan Bitconnect money, despite red flags. In January, the Texas State Securities Board, and the North Carolina secretary-of-state sent cease-and-desist letters to Bitconnect accusing them of securities fraud. Bitconnect announced its shut down on January 16th, blaming “the continued bad press made community members uncomfortable.”
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Bitconnect’s cryptocurrency dropped through the floor. This led to people like this Reddit user, who claimed to have taken out a $500,000 loan for his business and then loaned it to the now-defunct crypto firm.
Instead of feeling anxious about Bitconnect’s closure the close-identical Davor coins were celebrated. Davor Coin expressed concern over Bitconnect’s closure, writing “This doesn’t change anything for us.” Davor Coin had just become the “largest lending platform in all of the world!”
These boasts attracted the attention of Texas authorities, who also issued a cease-and DESIST to Bitconnect. Texas sent Davor Coin, its cease-and demise on Feb. 2, asking it not to sell in Texas until it is registered as a securities firm.
Five days later Davor Coin made the announcement that it was closing its loan platform. Customers were left without anything but the cryptocurrency of the mostly dead company. It plummeted from its peak price of $177 per token to less than 1 penny per coin.
Facebook was the first place buyers went to share their losses. One of them, who had loaned $4,000 to the company, was left with $9. Another man complained about having loaned Davor Coin $20,000 but receiving the equivalent of $23.50 when he attempted to cash it out.
As swindled investors lamented the losses on Twitter, other cryptocurrency companies rushed to fill the gap.
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“Good announcement for your guys,” a Twitter user who had no profile picture tweeted at many people who were upset about losing money to Davor. “Good announcement” was an advertisement about a new cryptocurrency lending firm that will be launching Saturday.