One of the most common questions we get from new buyers on Redeeem goes something like this: "I see a bunch of Amazon Gift Cards selling for 20-30% discount our site... are they legit?" Our answer is obviously and emphatically "yes", but the true reason deserves a much longer explanation.
First, it's worth pointing out that sellers set their own rates and we have strict requirements for purchase receipts on Redeeem. Every gift card and receipt is carefully reviewed by our validators before it can be posted for sale. We have a zero-fraud policy and rely heavily on Trust Ratings to help us resolve disputes fairly and efficiently. All users on the platform are required to complete KYC and identity verification after a certain volume. We take trust very seriously.
So why are gift cards so cheap? A better question would be: "Why are people willing to pay a 20-30% premium to buy bitcoin?" Bitcoin is still hard to buy for most people around the world. Gift cards are the easiest way to buy bitcoin for people in some countries, and people who have it don't part ways with it easily.
Let's break the reasons into categories...
1. Limited Access
Banks the past few years have been notorious for blocking crypto. Wells Fargo, Bank of America, Citigroup, Chase, Discover, Capital One and 20+ other banks have formally banned crypto purchases on credit card, ACH and wires, despite investing in blockchain technology heavily behind the scenes. Banks vary in their strictness in enforcing these laws, but it’s well documented that many wires into Coinbase and other exchanges have been getting blocked.
In their defense, crypto still has unclear tangible value, high monetary risks, limited regulation, high fraud, virtually no insurance, and irreversible transactions—making it unpopular to many large institutions.
2. Price Speculation
April 2019 had the highest volume of future bets placed on bitcoin ever, at 22,000 open contracts. Bitcoin is a highly volatile investment vehicle with high volume, making it perfect for day-traders. So the number of contracts continues to increase every month globally. The kind of bets these traders are placing can yield as high as 800% returns, so they may not care about a 20% loss upfront.
Exchanges are very slow. For new users on Coinbase who choose the ACH option, it takes about 4 days to actually own and withdraw bitcoin from Coinbase. If you choose to send a wire, this cost you $25 anyway which is roughly 25% cost of buying a $100 gift card. And we already know other marketplaces like CardCash and Raise regularly send checks in the mail. People are willing to pay a premium for speed—especially considering the price volatility of bitcoin.
4. Exchange Limits
Crypto exchanges often have low purchase limits for bitcoin. It’s easier to buy gift cards across multiple retail stores like CVS, Walgreens, Ralphs, etc and sell them for bitcoin than buying directly with a credit or debit card. Many people reported their bank accounts being frozen for trading too much crypto.
5. Foreign Demand
China has huge demand for bitcoin. After the Chinese government banned bitcoin and cryptocurrency trading in September 2017, a large number of Chinese investors still actively trade bitcoin, circumventing restrictions through use of VPNs, stablecoins, and OTC markets, and they are willing to pay a premium. Other countries (not named China) have demand for bitcoin because its a more useful currency than their own fiat, especially in Africa.
Many countries have some unusual tax laws for cryptocurrencies. In Israel, cryptocurrencies are taxed as high as 50% capital gains for businesses. In China, despite a blanket ban on crypto trading, the P2P and OTC markets are still legal (and active). For many wealthy Chinese, bitcoin (and stablecoins) are tax havens for their money, and they may be willing to pay a premium to get bitcoin.
Nigeria has the #15 highest inflation rate in the world. Other countries like Venezuela and Argentina are desperate to move their earnings into an asset that not only will retain its value, but may actually increase. Many citizens in of these hyperinflationary countries would rather get paid in a gift card or bitcoin in exchange for goods or services—knowing its a safer asset to hold.
Corrupt governments also impact people’s willingness to convert fiat currencies into cryptocurrencies, as they believe it is a safer place for their money. According to the Human Rights Foundation, more than 50% of the world’s population still lives under an authoritarian regime where their money could be at risk of forfeiture. This accounts for more than 2.6 billion people that live in nations tainted by repression, corruption and human rights abuses. A currency like bitcoin gives them protection from these factors, even at a 20-30% premium.
Amazon has over 250,000 “Turks” working on Mechanical Turk, and most have the option to be paid in Amazon Gift Cards rather than their fiat currency. Some % of this population that doesn’t have bank accounts, this is a great only way to cash out their earnings, even with a hefty fee. Amazon pays out hundreds of millions of dollars a year to their Turks, and not many of them are in countries where bitcoin exchanges are available.
Amazon and other retailers have a reputation for shutting down accounts of buyers with money trapped inside. They will do this if buyers have unusual buying patterns or buy too many secondhand gift cards from non-authorized retailers. With every trade comes the inherent risk that the entire gift card will be frozen by the retailer or become invalid in some other way. It's not guaranteed money, and this is reflected in the price.