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Examining Bitcoin ATMs with the Kansas City Fed

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Nonbank Financial
Tuesday, September 12, 2023

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.

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