Despite facing criticism for illicit or predatory behavior, the crypto ATM industry is flourishing in the United States, as revealed by a report issued by the Federal Reserve Bank of Kansas City. The report highlighted the expanding customer base of crypto ATMs, which could benefit from enhanced education about cryptocurrencies.
Crypto ATMs facilitate the conversion of Bitcoin and often other cryptocurrencies or stablecoins into or out of fiat currency. Similar to traditional ATMs, these crypto ATMs are commonly situated in high-traffic areas and levy a fee for their services. This fee has sparked controversy in the crypto ATM realm, as pointed out by Franklin Noll, the lead payments specialist at the Kansas City Fed, in the report. The average fee for using a crypto ATM ranges between 15% to 16%, with some operators setting unfavorable conversion rates that can effectively raise fees to around 20% in many instances.
The report identified four distinct user groups for crypto ATMs. Among these were cash users, potentially those without bank accounts by choice. Another segment comprised older individuals who found the technology of ATMs more familiar than that of crypto exchanges. Convenience was a motivating factor for some users, while others appreciated the relatively greater anonymity provided by ATMs.
The report also highlighted that crypto ATMs necessitate identification, often in the form of a phone number. These ATMs fall under the category of money-servicing businesses and are therefore subject to state and federal regulations, including Anti-Money Laundering (AML) protocols. The report acknowledged that regulatory compliance can lead to significant overhead costs for operators, despite instances of low compliance within the industry.
A substantial user group for crypto ATMs consists of minority communities and immigrants. Immigrants often use crypto ATMs to acquire cryptocurrencies for person-to-person transactions like remittances. The report also raised concerns about predatory practices in the crypto ATM sector, where high-risk and high-cost services are presented as avenues for financially disadvantaged individuals to access potentially lucrative financial investments. The report cautioned about potential losses for inexperienced crypto investors using crypto ATMs to purchase volatile cryptocurrencies.
Additionally, the report referenced data from Chainalysis, which indicated that individuals who fell victim to scams transacted a total of $345 million through crypto ATMs in 2022. The report drew the conclusion that the industry’s involvement in enabling money laundering and fraudulent activities could potentially expose the public to substantial risks.
While comprehensive industry statistics are infrequent and not entirely reliable, the report noted a clear resurgence in growth following a downturn caused by the COVID-19 pandemic. An illustrative case is that of operator Bitcoin Depot, which went public in July and experienced a notable surge in revenue.