US ‘bitcoin ATM’ industry growing despite risks, research finds

Remittances are big driver of bitcoin-to-cash ATMs, but industry is predatory, paper warns

Kansas City Federal Reserve
The Federal Reserve Bank of Kansas City
David R. Frazier Photolibrary, Inc. / Alamy Stock Photo

The US has a cash-to-bitcoin ATM industry that meets consumer demand despite major risks, says a paper published by the Federal Reserve Bank of Kansas City.

The paper’s author, Franklin Noll, presents a detailed analysis of cash-to-bitcoin ATMs, also known as BTMs. They can send funds to a digital wallet or create a paper receipt with the cryptographic information for withdrawing money using a QR code.

The most popular use for BTMs is sending remittances, the paper finds. The cost of sending a remittance using BTMs may be similar to traditional means of doing so.

“The industry is most often charged with ‘predatory inclusion’, or disguising high-risk, high-cost services as ways for the financially disadvantaged to gain entry to lucrative financial investments,” Noll says. “Some argue that BTMs are marketed to the unbanked, low-income and migrant communities, consumers who tend to use cash more often.”

Noll estimates there are 49,337 BTMs in operation in the US, and that they attract revenue of $3.63 billion annually. Due to fees, consumers could spend up to $22.69 billion through BTMs annually, he says.

“After remittances, BTM users report using bitcoin to an almost equal extent for investing or making online purchases,” says the paper. “A minority of users also report using bitcoin as a store of value or converting it into another form of cryptocurrency.”

US law enforcement agencies report BTMs are used as untraceable methods for scam victims to hand over funds, Noll says. “According to one report, BTMs are the most common way to launder money.”

“Customers pay high fees to use a BTM, on top of a possible exchange fee,” he warns. “The median fee for buying bitcoin from a BTM, as self-reported by BTM operators in the United States, is 16% of the value of the transaction.”

Total fees could equal around 20% of the funds handled by BTMs. But despite this, Noll says, consumers are likely to carry on using them.

The main overhead cost for running a BTM is regulatory compliance. Despite this, “many BTM operators do little or nothing to comply with existing regulations”.

After a halt in growth and subsequent retrenchment during the pandemic, the numbers of BTMs is growing. But this growth, he argues, “should not obscure charges of predatory and illicit behaviour”, which could cause substantial losses to uneducated investors.

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