The topic of cryptocurrency has become increasingly
mainstream, so much so that Bitcoin ATMs now can be found just about anywhere.
The Federal Reserve Bank of Kansas City recently published an article detailing
findings from its research on this relatively new and largely unexamined
industry, describing how these standalone machines work, who uses them and some
of the risks faced by the industry.
Bitcoin ATMs, also referred to as “BTMs,” are standalone kiosks
which convert cash to crypto. They are roughly the size of most traditional,
cash-based ATMs but typically come with higher fees (users report a median
average of 16 percent of the transaction value) and much more controversy.
However, the fact that many Americans still utilize BTMs,
even after the 2022 “crypto winter” recession, during which crypto prices
dropped precipitously, demonstrates there is market demand from customers
looking for an alternative to crypto exchanges found online, as well as to
traditional cash currency.
Reliable data on the BTM industry is hard to come by, making
it difficult to get an accurate picture of the number of machines. Estimates in
the U.S. market range between 30,000 and 70,000 and estimates on the number of operators
ranges from 19 to 220. Estimates vary regarding the industry’s average annual
earnings as well but tend to be in the hundreds of millions of dollars.
But the Kansas City Fed did find some verifiable information
to offer a snapshot of the BTM marketplace in its report on the matter.
Through its research, the Kansas City Fed consumers tend to
utilize BTMs’ cash-to crypto service model, despite the high fees commonly
associated with them, for investment, remittances or both.
Roughly 10 percent to 25 percent of U.S. adults hold or use
cryptocurrency. They are relatively evenly spread across age groups with a
slight majority in the 30-44 range. The report groups these people into four
categories:
·
People who prefer to use cash and may be
unbanked or underbanked.
·
Older users who may not be as adept with the
latest technology but are used to traditional ATMs. These users tend to prefer
familiar, personal, and tangible experiences.
·
Users who seek greater anonymity than is
provided by a crypto exchange.
·
Users who are willing to pay more for the
convenience of quick and easy transactions.
To root out predatory and illicit behavior within the
emerging BTM industry, as well as get ahead of potential conflicts with
regulators and law enforcement, some BTM operators have formed an organization
known as the Cryptocurrency Compliance Cooperative – described on its website
as “a non-profit advocating for universal compliance standards within the
cryptocurrency industry.”
BTMs are the most common way to launder money, according to
one report the Fed cited. One BTM operator can process tens of millions of
dollars in ill-gotten cash and do so with relative anonymity. The speed,
convenience and irreversibility of the cash-to-crypto conversion make BTMs
ideal for money launderers. Cash from illicit activities can be converted into
crypto and sent to a virtual wallet, where it then can then be transferred to
an online exchange.