The Incredible Market for Converting Gift Cards to Bitcoin | Financial markets

That Amazon gift card your sister-in-law passive-aggressively gave you for your birthday can also be used as shadow currency if it falls into the wrong hands. The exchange of electronic coupons from more than a hundred companies, from Amazon to Casa del Libro, has become a new way to obtain cryptocurrencies without having to declare them to the Treasury and guarantee anonymity. This informal market has flourished in recent years thanks to…

That Amazon gift card your sister-in-law passive-aggressively gave you for your birthday can also be used as shadow currency if it falls into the wrong hands. The exchange of electronic coupons from more than a hundred companies, from Amazon to Casa del Libro, has become a new way to obtain cryptocurrencies without having to declare them to the Treasury and guarantee anonymity. This informal market has flourished in recent years thanks to new cryptocurrency brokers and virtual platforms that facilitate these transactions and are accessible from online forums.

The resale of these cards, also called “closed-loop” because they can only be used in exchange for cryptocurrency, has created its own secondary market, mainly due to the fact that they are virtually untraceable to financial regulators. . These are transactions that are not controlled by the Bank of Spain and cannot be monitored by the Tax Agency, as confirmed by sources in both departments. Five days. It also benefits from legal loopholes in European e-money regulations. Chainaanalysis, an analytics firm that tracks Bitcoin transactions, can see any transactions occurring on the chain, such as transfers of funds from one person to another, as well as transactions on decentralized exchanges. However, it was confirmed to the newspaper that “we are not able to provide information about the purchase of gift cards.”

In most cases, the brands offering these prepaid cards are not aware of their use in the secondary market. Sources from the House of Books confirmed this information. Five days that the use of their cards with providers such as BitRefill and Coinsbee surprised them: “brand gift cards can only be used in Casa del Libro stores,” they note. Exchange for cryptocurrencies is also not allowed. This was also detailed by the logistics giant Amazon, which at the end of 2023 had accumulated $5,400 million (€5,039 million) in unredeemed cards. The technology company has warned its consumers that the cards should only be used in its stores.

According to Francisco Cerantes, coordinator of the expert group on personal income tax of the Spanish Association of Tax Advisors (AEDAF), this activity can be considered a tax crime or even money laundering if the assets were acquired with money from an activity. illegal “The Tax Agency, from a computer perspective, is one of the most powerful tax administrations in the world,” Cerantes said. “However, I don’t think I can trace these transactions. What it can do is control the middlemen.” Penalties for not declaring your cryptocurrencies on your tax return, according to Cerantes, “can range from 150%, although if you comply, they can be reduced by 30% for compliance with the terms of the settlement and an additional 40% for compliance and payment of taxes.” the sanction itself.”

Popular forums on platforms such as Discord, Reddit and Telegram have created an unregulated market for transactions. peer-to-peer Bitcoin and is full of users looking for ways to make transactions without using fiat currencies. “I want to spend part of my earnings on gifts for my one-year-old daughter,” writes a user from the Netherlands on the forum. “I was thinking about using cryptocurrencies directly, leaving paper money aside. Does anyone recommend doing this? ask. In the depths of these forums, strangers exchange codes and advice to avoid the traditional financial system.

In many cases, they trade these cards (below face value) to crypto asset brokers such as Paxful, BitPay or Coinsbee, although the options are endless. These payment providers, which account for more than half of such transactions in Western Europe, according to Chainana analysis, act as fintech and they promise to be a safer way to make these transfers. At Paxful, a cryptocurrency exchange broker that offers the ability to use gift cards from 133 brands, you can exchange a Google Play card for Bitcoin using an anonymous user like “LOVEBTC666666” based in China, who claims to be “fair and fast” ” The interested party provides a card code worth 20 euros in the Google Play stores and in return receives 0.0003 in Bitcoin (current currency exchange) from the other side of the world.

A user with 1261 previous transactions has 706 positive comments, assuring the client of his reliability, although he blocked 84 people and was blocked by 32. If the user trusts the counterparty, he just needs to enter the counterparty’s gift card details and the code of the wallet to which you want to receive the transfer . Conversely, cryptocurrencies such as Bitcoin or Ethereum can be traded on one of them. exchanges and pay your gas bill with a Cepsa gift card.

However, although these companies provide banking services, they are not subject to the same regulations as traditional financial institutions. For example, not all of these companies comply with European verification or know your customer (KYC) requirements, and this risk could contribute to the spread of fraud. In the United States, 41,632 scams in 2023 involved prepaid or gift cards, according to the Federal Trade Commission (FTC). In Spain it is impossible to quantify this activity. Sources in the Association of Treasury Inspectors confirmed this information. Five days who know nothing about these companies or the activities they carry out in Spain.

For example, at BitPay, only transfers over $3,000 require the client to verify their identity. On the other hand, Paxful, which claims to follow KYC requirements, requires users to identify themselves by name, email address and ID before making a transaction. The Bank of Spain has hundreds of companies providing digital currencies, but none of the three mentioned companies appear on the list. Sources at the Bank of Spain confirmed that the list only implies that the companies comply with rules to prevent money laundering, and not that they are under the supervision of the organization. BitPay and Paxful did not respond to the newspaper’s requests.

Allison Owen, Research Fellow at the RUSI Center for Financial Crime and Security Research, think tank based in London, believes jurisdictions should strengthen their regulation. However, he adds that tracking transactions on decentralized exchanges is not completely impossible. “I don’t understand when people say it’s difficult to track large decentralized exchanges,” he said. “Cryptocurrencies offer a huge opportunity, you have some traceability compared to cash.” Christian Menda, head of Chaina analysis at Iberia, said that “surveillance, along with strong KYC policies, is essential to dismantling the networks that enable these crimes.”

Brussels wants to clean up these deals. The European Commission has adopted a new set of requirements for these digital currency exchange providers. Among them, they will be under the supervision of the anti-money laundering authority and they will have to tighten their KYC policies. In the US, the US Securities and Exchange Commission (SEC) has begun to tighten its policies towards cryptocurrency providers. This Monday, the regulator announced its intention to sue stock brokerage company Robinhood. A year ago, the SEC sued Coinsbee, another of these companies.

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