Using Bitcoin Atms: A Guide To Investing

Bitcoin ATMs are standalone kiosks that allow users to buy and, in some cases, sell Bitcoin using cash or debit cards. As of 2021, there were over 24,000 Bitcoin ATMs installed globally, with the Crypto ATM Market valued at $54.8 million in 2020. This presents a potentially lucrative business opportunity for investors. However, there are several costs and regulatory requirements associated with owning and operating a Bitcoin ATM, including upfront costs for the machine, installation, transaction and commission fees, liquidity requirements, machine maintenance, and operational costs. It is also important to be aware of the relevant laws and regulations, such as anti-money laundering provisions, that govern the operation of Bitcoin ATMs.

Bitcoin ATM business opportunities

Bitcoin ATMs, or "cryptomats", have been around since 2013, and there are now approximately 7,000 worldwide. Bitcoin ATMs are a more decentralised alternative to online exchanges, allowing users to buy and sell Bitcoin and other cryptocurrencies with cash.

The Bitcoin ATM business model has remained largely unchanged over the years, and it offers a recurring source of income through regular customers, particularly those who are new to cryptocurrency. Bitcoin ATMs are also a good option for crypto miners who want to convert their mined coins to fiat currency.

Starting a Bitcoin ATM business requires several preparation steps, including:

• Understanding the regulations in your area and finding a banking partner.
• Registering at cryptocurrency exchanges.
• Securing a steady supply of Bitcoins.
• Choosing a suitable location for your machine, preferably a high-foot-traffic area with long opening hours.
• Organising cash and cryptocurrency logistics, machine maintenance, and customer support.

The average monthly transaction volume for a one-way machine is $25,000, with a typical commission of around 10-15%. The usual ROI for an operator's first machine is between 6-9 months.

It's important to note that Bitcoin ATM operators have complete control over their machines and the data and funds that flow through them. They also need to ensure compliance with regulations in their jurisdiction, such as AML/KYC requirements in the USA.

Overall, the Bitcoin ATM industry presents a unique business opportunity, particularly for traditional ATM operators looking to expand into the world of cryptocurrency.

Bitcoin ATM vs cash ATM

Bitcoin ATMs, or BTMs, are kiosks where customers can buy and sell Bitcoin and other cryptocurrencies. They are not the same as traditional cash ATMs. While cash ATMs allow bank customers to withdraw, deposit, or transfer funds from their bank account, Bitcoin ATMs are standalone kiosks that allow users to buy or sell cryptocurrencies using cash, debit cards, or credit cards. They are connected to the internet and utilise blockchain technology and QR codes to send cryptocurrencies to users' digital wallets.

There are a few key differences between Bitcoin ATMs and cash ATMs. Firstly, while cash ATMs are connected to a central system and a user's bank account, Bitcoin ATMs are not. This means that anyone can buy or trade cryptocurrencies at a Bitcoin ATM, regardless of whether they have a bank account. Secondly, Bitcoin ATMs are owned and operated by third-party companies, whereas cash ATMs are typically owned by banks or financial institutions. Additionally, Bitcoin ATMs may require users to have an existing account with the Bitcoin ATM operator, while cash ATMs require a bank account.

Another difference is the type of transactions allowed. While cash ATMs allow users to withdraw, deposit, or transfer cash, Bitcoin ATMs primarily allow users to buy Bitcoin, with some also offering the option to sell. Furthermore, cash ATMs dispense cash, while Bitcoin ATMs do not; instead, they transfer cryptocurrencies to a user's digital wallet.

In terms of accessibility, there are currently over 38,000 Bitcoin ATMs worldwide, with the majority located in the US. In contrast, there are approximately 31,000 cash ATMs in the US alone.

Finally, it is important to note that Bitcoin ATMs have been associated with high transaction fees, ranging from 4% to 25% of the transaction value. They have also been targeted by scammers and fraudsters due to their anonymous and accessible nature.

Bitcoin ATM transaction fees

Bitcoin ATM fees are typically much higher than those of traditional ATMs and can vary significantly depending on the operator and location. These fees are influenced by various factors, including operational costs, regulatory compliance, cash logistics, and marketing expenses.

The fees for using a Bitcoin ATM range from 10% to 23% of the transaction value. For example, if you use a Bitcoin ATM to convert $500 into Bitcoin and the operator charges a 15% fee, you will receive $425 worth of Bitcoin after the fee is deducted. It's important to note that there may also be additional network fees for transferring Bitcoin from the ATM to your wallet, typically ranging from $1 to $3.

The high fees associated with Bitcoin ATMs are a result of the extensive operational costs incurred by the operators. These costs include regulatory compliance, cash logistics services, internet connectivity, insurance, leasing space, marketing, customer support, and machine maintenance.

To find Bitcoin ATMs with competitive fees, it is recommended to look for reputable operators with transparent fee structures. It is also advisable to be cautious of operators who offer low initial fees but later levy additional charges or inflate Bitcoin prices.

Compared to traditional ATMs, Bitcoin ATMs offer a specialised service that caters to the growing demand for cryptocurrency transactions. While the fees may seem high, they reflect the operational complexities and the efforts to ensure secure and legitimate transactions in the cryptocurrency industry.

Bitcoin ATM regulations

Bitcoin ATM operators need to comply with regulations at both the federal and state levels. In the US, 60% of the world's bitcoin ATMs are located, and the number of installations is increasing.

Federal Regulations

The Financial Crimes Enforcement Network (FinCEN) considers a bitcoin ATM operator to be a money-services business (MSB), and all MSBs must register with FinCEN. This involves filling out form 107 online within 180 days of establishing an MSB, and renewing every two years. Once registered, the operator must comply with the Bank Secrecy Act (BSA), which requires them to establish an anti-money laundering (AML) compliance program. This includes appointing a dedicated AML compliance officer, maintaining effective reporting and record-keeping, and knowing your customer (KYC)—identifying and verifying the identity of customers to prevent fraud and spot risky transactions.

The BSA also requires operators to monitor customer transactions and file a currency transaction report for any transaction over $10,000, and to file a suspicious activity report for any transaction that might indicate money laundering, tax evasion, or other criminal activities.

State-Level Regulations

Each state has different laws and requirements for the setup and operation of Bitcoin ATMs. Some states require a money transmitter license (MTL), while others do not. It is recommended that operators obtain a no-action letter from the state, which includes detailed information about the proposed ATM, such as its location, vendor name, machine type, and AML/BSA policies.

Most states also require a surety bond, which ensures the company will follow money transmitter regulations. Obtaining a state license can take three to six months, or even a year or more in some states, and the cost can be financially onerous.

Compliance

Compliance with regulations is critical, and operators may need to work with legal consultants and outside consultants or lawyers to create the required compliance programs. Failure to comply can result in punishment or imprisonment, even if all other aspects of the business are correct.

Future Regulation

The Cryptocurrency Compliance Cooperative, which includes Bitcoin ATM operators and blockchain analytics firms, seeks to influence the regulation of the sector, particularly federal regulations from FinCEN and the Office of Foreign Assets Control (OFAC). A proposed regulation from FinCEN would require additional KYC and AML checks for domestic cryptocurrency transactions over $3,000 and international transactions over $250.

Bitcoin ATM locations

Bitcoin ATMs are kiosks that allow people to buy and sell Bitcoin and other cryptocurrencies using cash, credit, or debit cards. They are connected to the internet, allowing users to connect directly with a Bitcoin exchange.

There are tens of thousands of Bitcoin ATMs worldwide, with most of them located in the United States. Bitcoin ATM providers are companies that manufacture, deploy, and sometimes operate these machines. Some providers only focus on the production of the machines, while others offer a comprehensive service package that includes deployment, maintenance, and regulatory compliance.

When choosing a Bitcoin ATM location, it is important to consider high foot traffic locations with long opening hours as they tend to have a higher volume of transactions.

• Coinhub: Over 2,000 machine locations nationwide in the US.
• Lowest Fee Bitcoin ATMs: Locations in over 40 states and most major cities in the US.
• Byte Federal: Network of ATMs and tools to enable users to buy, sell, and manage cryptocurrency.
• Coinme: Thousands of locations around the US to buy and sell crypto with cash.
• CoinFlip: 5,000 kiosks across the globe.
• Cash2Bitcoin: Locations nationwide in the US, with many open 24/7.
• Bitstop: Over 2,500 locations across the United States.
• Just Digital Coin: Hundreds of locations across 26 states in the US.

Frequently asked questions