Zeex, a cryptocurrency gift card supplier, has postponed plans to launch its marketplace in late November to a date before Christmas amid this week’s sell-off and its ensuing volatility. Ivan Castano reports

“We changed the launch date,” concedes Apan Amos, the Israeli start-up’s marketing boss, just as bitcoin dropped over 30% to trade at around $3,500, down from $4,200 on Black Friday weekend.

Zeex, which raised $12.3m in its late October Initial Coin Offering (ICO), needs “flexibility in order to have the ability to launch at the right time,” Amos says, adding that “the promise” is to move Zeex.me out of beta by New Year.

That promise – and that of the entire, $126bn electronic cash market – is now being severely tested as digital currencies continues to free-fall. The 1,300-coin market has seen its value halve since November 18. Investors have dumped Bitcoin, Ethereum, Litecoin and their ilk amid a deepening SEC crackdown on ICOs, a raft of bad news triggered by a contentious bitcoin cash fork and NYSE-owned Bakkt’s decision to postpone its futures launch until late January from December 12.

Amid this backdrop, the largest crypto card start-ups have been shaken to the core. TenX, once seen as the space’s most promising start-up, has seen its market value collapse around 50% to $29bn. Meanwhile, archrival Crytpo.com, which was girding up to launch its MCO Visa Card in the U.S. before crypto’s latest crash, is now hovering at $2.08 from $3.69 a week ago.

Amazon, Starbucks vouchers

Despite the bloodbath, Zeex gift card co-founder and CEO Guy Melamed, says the firm’s unique offering should help it survive crypto’s treacherous waters, adding that it’s decentralised, zero-fee market place has enough cash to survive a prolonged downturn in digital currencies or “crypto winter.”

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By GlobalData

Zeex is backed by gift-card major Zeek.com, which boasts over 100 retail partners including Amazon, Starbucks, H&M and Google Play, set to be available when the platform goes live in Seoul, South Korea, one of Asia’s top crypto markets. Entry into top European markets like Russia and perhaps the U.S. will follow, depending on regulatory requirements, according to Melamed.

Using the ‘Take Your Crypto Shopping’ slogan, Zeex will first allow customers to buy virtual gift cards with Ethereum and other ERC-20 tokens before accepting Bitcoin and other cryptos, Melamed says. Zeex will launch its web site in tandem with leading crypto wallets such as BRD, Ginco and WGP, which Melamed boasts will bring over 2 million users to its platform in its first year of operation.

With 1.5m and ‘hundreds of thousands’ of users, BRD and Ginco respectively are “2.0 wallets” enabling people to spend digital cash as well as to hold it, says Amos.

Free from Visa, Mastercard

Analysts say Zeex’s greatest advantage lies in its independence from Visa or Mastercard – a reliance that has gotten TenX and other rivals in trouble because the incumbent operators limit their geographical reach and must follow strict regulations that start-ups can’t always meet.

“TenX and the rest of its kind are offering debit cards to buy anything, just like Visa or Mastercard,” says Yaniv Feldman, CEO of crypto research firm One Alpha. “Zeex is giving you the option to buy coupons or gift cards limited to their offer but they have lower [operating] risk because they don’t have to deal with credit card companies or pre-approve anything with merchants.”

Zeex buys its own stock from retailers, allowing it to hedge bulk discounts, and uses an efficient hedging mechanism against the potential for lower crypto prices, says Feldman. Still, it faces rising competition from Coinbase, which is building a similar marketplace through partners like Gyft and eGifter, and the likes of Amazon and Google which could eventually introduce similar services.

Melamed is unshaken by future competition, however, saying that TenX, Crypto.com and others like Hold or FuzeX are over-reliant on Visa and Mastercard which could eventually turn on them. Coinbase “has a limited supply and geography,” he adds, while most debit card operators require painful KYC processes hampering crypto adoption.

“I honestly don’t see myself buying a coffee or t-shirt if I have to go through so much KYC hassle,” Melamed quips. “We want to offer a direct way to spur crypto adoption and we offer a seamless and fraud-free platform.”

The young executive could not immediately explain how Zeex will be “fraud free,” an increasingly important benefit in the hack-prone digital currency space, but notes the platform is embedded with so-called swappers that help to securely identify a transaction’s parties, helping avoid double spending and cybersecurity threats.

Hedging crypto’s fallout

A protracted cryptocurrency-price decline also won’t affect the bottom line of Zeex, which hopes to lead the growing, $600bn virtual vouchers market, Melamed insists. This is because when customers buy a gift card, the company instantly exchanges their crypto against “a basket of stable coins” such as Tether (though some question the dollar-pegged currency’s reliability) or fiat through so-called market makers or liquidity providers, ridding itself of the digital coin used. So far, Zeex has been unable to convince major retailers to share its risk in accepting cryptocurrencies. However, as blockchain and Internet money show its promise, Melamed hopes they will eventually do so.

Liquidity providers make up the backbone of cryptocurrency-fiat transactions, charging a 1% to 8% commission depending on risk/revenue scenarios, analysts say. They short digital currencies or hedge their positions against futures instruments like contracts for difference (CFDs) to leverage themselves against declining crypto prices.

“I am not going to give you all of our black box content but our transactions have zero risk” says Melamed, referring to the firm’s market-maker partnerships.

Meanwhile, rival payments platform Crypterium, plans to use similar market makers to avoid losses if Bitcoin prices continue to decline.

“We are not going to hold any BTC,” says marketing and communications director Siranush Sharoyan. “We are going to hedge all our transactions by sending market markers crypto and then instantly getting fiat into our accounts.”

Sharoyan reveals Crypterium or CRPT, as its token is called, is working to launch its first debit card by December 25 with an initial circulation of 5,000.

The yet-to-be named card will use a “zero balance” strategy, meaning users will be able to instantly spend their crypto for purchases. This is in contrast to the slower, “pre-loaded” mechanism rivals use requiring customers to sell their crypto for fiat before they can make card purchases, Sharoyan claims.

Pay Skype, taxes

Currently, Estonia-based Crypterium enables users to top up their mobile phones or purchase Skype or Viber credit. Customers can even pay their mortgages or taxes in any of the EU’s 25 countries, according to Sharoyan.

If the digital currency market continues to writhe, will some market makers go bankrupt?

Analysts say that’s likely, especially if crypto plunges below $3,000, dragging the entire market with it and further challenging its status as the ‘the future of money.’

“When things move so drastically like in the last few days, it’s very hard to maintain a good position,” Feldman notes. “The worst case scenario is that liquidity pools get wiped out with BTC becoming worthless. Demand drops, revenues drop and the entire sector goes out of business, forcing liquidity providers to re-think their business model or die.”

But Feldman, who helps run liquidity provider K1, is confident BTC won’t slip much lower than $3,000, dismissing claims that it could hit $1,000. Still, he says crypto’s maiden currency could fluctuate at the $3,000 range for some time even, as long as 2020-2021, staging a slow, bathtub-shaped recovery.

Slumping Black Friday

“We are not in crypto winter, we are in crypto Armageddon,” Feldman says, adding that Black Friday sales at crypto-accepting merchants like Overstock, Expedia or Shopify likely disappointed.

“Last year, when bitcoin was $15,000, a lot of people were buying Christmas gifts but I suspect this year, that number is going to be very small,” he points out.

But fund manager Tom Lee, Bitcoin’s biggest bull, is sticking to his $15,000, year-end price prediction (down from an earlier $25,000 target), recently telling U.S. media “that a few things that could happen to drive that.”

Lee claimed BTC transactions are growing three times faster than rival Paypal’s, adding that the mysteriously created digital currency could exceed the latter’s market share by six times to $1.3tn in a few years.

“Digital asserts are going to be relevant in a world where growth is increasingly digital so to me, BTC is a real bet on a project where we have 50m wallets and 5bn visa cards,” Lee says. “So I think the runway is really [for] adoption in the future.”