You see them in convenience stores gas Stations and malls they often look like Traditional ATMs but these kiosks allow Customers to buy and sometimes sell Crypto tokens in cash Bitcoin ATMs or Btms exploded in popularity during the Height of the crypto craze between 2020 And the middle of 2022 reaching as many As 34,000 across the us at their Peak Many shops with btms I spoke to said They see at least one user a day that Surge didn't come from crypto enthusiast Alone scammers and money launderers also Took notice so what's Driven this BTM Boom why is the industry attracting Criminals and how are prosecutors taking Action what happened was when Co started In 2020 a lot of people were spending More time at home uh that translated Into a lot of time spent researching Crypto and I think adoption of crypto Just exploded quite a bit uh early on in The pandemic and as more people buy Crypto Bitcoin ATMs are a source where You can purchase it Brandon mince is a CEO of Bitcoin Depot the company with The largest market share of Bitcoin ATMs Across the US in July it became the First crypto ATM operator to go public On a major US Stock Exchange let's take A look at their second quarter earnings Even in today's market with Bitcoin Trading around half of its all-time high Coin Depot's business is still growing
The company brought in roughly $1975 Million up 17.5% from a year ago Bitcoin Depot has had a lack of correlation to The Bitcoin price really ever since we Started uh we've been doing well when The price goes up down or stays the same And we believe that's because our Customers have a bit of a different Intent on their purchases on average Versus customers of online exchanges Bitcoin Depot is tapping into growing Demand for btms not just as a vehicle to Invest in crypto but an alternative to Slower traditional Finance it does Appear a large portion of them may be Underbanked uh or unbanked and Bitcoin May be a more convenient tool for them To do their everyday transactions in Their lives um versus using this the Standard alternative Financial Services They they had been using as part of an August 2023 invest presentation Bitcoin Depot surveyed 625 users and found Nearly 40% used the machines to take Advantage of crypto's peer-to-peer Ecosystem for things like cross border Payments or sending money to loved ones More than a quarter of respondents also Said they use the machines to make Online purchases all told the Kansas City fed roughly estimated the BTM Industry's annual revenue at more than 3.6 billion and that's driven largely by Fees self-reported data from operators
On on coin ATM radar shows common Commissions of 15 or 16% to buy Bitcoin And that doesn't include extra flat fees That's higher than the fees listed by Crypto exchanges to buy Bitcoin but BTM Operators need to factor in the cost of Rent handling cash and the actual Equipment still the industry is Attracting more and more customers but It's also catching the attention of Bad Actors in 2021 at the height of the Kiosk boom experts raised concerns over Scams and money laundering to CNBC I Mean look you see identity scams you see Romance scams you see heists of crypto Using uh you know fraudulent access to People's crypto accounts there are all Kinds of scams in crypto and I think Gary Gensler at the SEC has said it's One of the most scam intensive areas of Finance right now and that is certainly A problem for people who want to engage In legitimate business and for the Legitimate operators of these crypto ATMs who want to create a new business For themselves much like prepaid cards In other popular vehicle for scams once You send crypto tokens there's very Little chance you're seeing that money Ever again that's just due to the Irreversible nature of blockchain Transactions scammers might gravitate Toward these machines if they can Convince victims to complete
Transactions with the added benefit of Minimal weight time to receive the funds In fact one of the stores I spoke to Said they regularly stop customers from Becoming victims of BTM scams it's Unfortunate that the bad guys benefit From the same thing as the good guys in That you can affect a transaction in as Little as 30 to 60 seconds through the Kiosk after going through the proper AML And kyc safeguards uh to effectively go Through that transaction as opposed to Setting up an online account with an Exchange there's a much more elongated Onboarding process so if we put Ourselves in in the shoes of the scammer They want the transaction to be affected Quickly data from coin ATM radar showed Dramatic drops in operating kiosks here In the US this year this was due in part To the closure of coincloud an operator That went bankrupt then there's Bitcoin Of America on behalf of the Secret Service like to thank all the law Enforcement and criminal justice Partners that helped us investigate and Prosecute this massive and far-reaching Case involving one of the largest Country's cryptocurrency ATM operators With over 2500 ATM machines across 31 States back in March an investigation by The US Secret Service led to the arrest Of three people including the CEO of Bitcoin of America they were charged
With money laundering and failing to Obtain their required operating licenses The Secret Service also mentioned that Scammers and rooc callers utilize boa's Lack of Consumer Protections and Anti-money laundering measures to Facilitate transfers from victims in Ohio and across the US the company also Kept fees paid by customers that they Knew were victims of scams those Averaged around 20% we reached out to Them and didn't hear Back in an effort to combat scams BTM Companies have Incorporated notices on Their devices in hopes of diverting Users from falling victim if you were to Go to typical uh crypto ATM machine you Would see any number of fraud prevention Warnings that appear on the screen Letting folks know that hey if you were Sent here by someone else if this Digital wallet is not in your control uh If someone is claiming to be from the IRS and says you have an outstanding tax Bill and to pay it in crypto this is not Uh a legitimate uh effort to uh get you To pay a p due bill that this is Probably a scam we actually we have Multiple warnings on our screens at Bitcoin ATMs you know warning people for Things such as you know an IRS tax scam Utility bill scam uh Etc and we also Have a team of over 50 customer support Reps that are trained very specifically
To look out for things that our users May say and calls with those reps to Further prevent scams these safeguards Can help some from falling victim but Criminals adapt and as technology Advances one group stands out as easy Targets seniors these criminals that are Utilizing AI it's important to be aware Of what's possible out there they'll end Up contacting a grandparent pretending To be the grandchild and saying hey I Got arrested while I was in Mexico and I Really need you to send money it has to Be done sooner than later the quickest Way to do it is to use Bitcoin ATM to Send it separate reports from the Kansas City fed and the New Jersey Commission Of Investigation warn that kiosks are Also being used for money laundering Operators must register as a money Transmitter meaning they're required to Comply with Federal anti-money Laundering regulation in addition to Registering you agree to among other Things have in place a written Anti-money laundering or AML compliance Program that articulates your policies Procedures and controls for how you are Going to help the government protect Prevent and deter potential money Laundering through your financial Institution I.E your kiosk operation um And then the examinations are conducted On a recurring basis despite this law
There have been cases of money Laundering using Bitcoin ATMs whose Operators were non-compliant in 2022 Manhattan's district attorney indicted Bitcoin ATM operator Robert Taylor with Operating an unregistered money Transmitter and tax fraud Taylor Allegedly flew under the radar and Advertised the anonymity of his kiosks The operator's Fleet converted more than $5.6 million in cash into Bitcoin across 46 locations while the operator earned Between 10 to 20% of the transactions The da said that when one customer Complained about the fees to the Company's Snapchat account the reply was Bro we got to maintain everyone's Privacy it's worth the Money operators are required to register With Federal Regulators but states often Have their own rules that can vary Widely my sense is there's there's an Enormous variation between the different States in terms of how they look at this Problem some states have have a lot of These some states not quite as many yet So it's it's sort of all over the map Much like crypto as a whole a big part Of helping the industry mature will be Addressing crime I think the kiosk Operators have have matured as a cohort Over time uh when we hear of new Entrance in the space or or deal with New clients uh many of them come with a
Lot of knowledge already uh in terms of Compliance requirements and what is Expected of them now seems much more of The challenge in terms of business Viability uh what does it take to be Competitive you know how do I compete With some of the larger players out There that have uh several years head Start uh have brand awareness and are in Multiple markets the industry is seeing Consolidation where bigger players are Buying out smaller operators actually Part of our strategy now that we are a Public company uh is to acquire some of Those small Bitcoin ATM operators and Part of the reason is because they don't Have the resources to operate their Businesses compliantly in some cases as We've moved forward we've seen more and More consolidation with a larger players Getting bigger but I think that there's Still an opportunity for upstarts and Smaller players to either grow in scale Or for those that have been on the fence Thinking about getting an industry to Consider an investment and possibly Compete
