Economics of Bitcoin ATM market could hinder wider adoption

As the digital asset market continues to evolve, cryptocurrency ATM usage grows with it. During the last decade, almost 40,000 Cryptocurrency ATMs have appeared all over the world.

bitcoin (BTC) ATM service provider Bitcoin of America had earned a share of the market, but recently closed store in the State of Connecticut of the United States due to the lack of a proper license.

The Connecticut Department of Banking (DoB) issued a cease and desist order against the company, accusing it of operating unlicensed crypto ATMs in the state. But the accusations did not stop there; the firm was also accused of facilitating scams by enabling transactions related to fraudulent activity.

In response to the challenges, Bitcoin of America issued a statement stating that it would immediately halt all of its operations in Connecticut. While the decision marked the end of the company's presence in the state, it also underlined the regulatory hurdles facing crypto ATM operators, particularly in the United States.

The shutdown also sent ripples through the crypto community, leading many industry observers to question the effectiveness and long-term usefulness of these machines.

Connecticut shutdown explained

Due to the nascent cryptocurrency industry, marrying digital currencies with conventional financial structures, such as crypto ATMs, requires complex regulatory oversight. This is particularly true in Connecticut, where the DoB oversees ATMs under the Money Transmission Act.

The law requires that any service that involves the transfer of money, including the conversion of traditional currency to cryptocurrency, must obtain a money transmitter license.

On May 22, the Connecticut DoB claimed that Bitcoin of America had not obtained the necessary license to operate Bitcoin ATMs in the state. He further claimed that four Connecticut Bitcoin ATM users were scammed out of tens of thousands of dollars through Bitcoin of America kiosks.

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the dob fixed: “Bitcoin of America, following the consent order, compensated these consumers a total of $86,000. After facing criminal charges, Bitcoin of America is in the process of ceasing operations in Connecticut."

In a separate incident in March, state officials in Ohio seized 52 Bitcoin of America ATMs as authorities suspected scammers were using the kiosks.

Operating crypto ATMs is harder than it seems

Jason Grewal, legal director at Web3 security firm Sys Labs, told Cointelegraph that operating a crypto ATM involves much more than simply acquiring a license.

Operators in the US must comply with the anti-money laundering (AML) rules set forth by the Financial Crimes Enforcement Network, comply with the Know Your Customer (KYC) rules of the Bank Secrecy Act, and comply with with the Internal Revenue Service requirements for reporting cryptographic transactions.

In Grewal's opinion, such complexities could play a significant role in diminishing the popularity of these machines. In March alone, a staggering 3,627 cryptocurrency ATMs went offline, marking the most significant monthly decline in cryptocurrency ATM history. He said:

“Considering the changing popularity of crypto ATMs, several factors seem to be at play. For one, the transaction fees imposed by these machines often exceed those of online exchanges, representing a deterrent to heavy users. Furthermore, the need to comply with complex regulations and licensing requirements can be challenging and potentially dwarf the perceived advantages of in-person crypto transactions.”

Alternatives like decentralized exchanges (DEXs) and decentralized finance (DeFi) platforms further shift the balance away from crypto ATMs.

Lower transaction costs, universal access, superior privacy, and a broader range of supported cryptocurrencies make these projects increasingly attractive to many people. DeFi platforms also offer features such as staking, yield farming, and lending, services not normally found in crypto ATMs.

Grewal believes that in the future, crypto ATM operators will need to innovate and change to better serve the changing needs of their consumers.

Robert Quartly-Janeiro, director of strategy at cryptocurrency exchange Bitrue, told Cointelegraph that four major companies currently dominate the crypto ATM market, something that needs to change if the market is to grow and adoption increases.

Furthermore, he believes that the physical location of crypto ATMs is also an important factor when it comes to attracting customers. He added:

“Ultimately, one of the key pillars for mass adoption of cryptocurrencies remains the ability to sell cryptocurrency for fiat currencies in the country. The landscape has changed slightly, so the need for crypto ATMs has changed economically, geographically, psychologically, as well as from an infrastructure standpoint."

The Economics of Crypto ATMs

Most of the crypto ATMs in operation today work in collaboration with established companies such as ChainBytes, LibertyX, CoinMe and others, which allow independent companies to become "operators", "partners" or "hosts" of these machines. .

The return on investment depends on several factors, including the location of the business (eg, business district, high traffic area); the number of daily transactions; the average transaction size; the expected total revenue from transaction fees; and the marketing strategy to promote the crypto ATM in question.

According For crypto ATM firm Chainbytes, a single Bitcoin ATM can earn up to $3,000 monthly, with monthly gross revenue of $30,000.

Operating a crypto ATM also presents several challenges. Regulatory complexities require operators to navigate often unclear laws, obtain the necessary licenses, and comply with AML and KYC regulations. Security risks, both physical and digital, require robust protection measures, adding to high operating costs including machine maintenance and cash management.

The inherent volatility of cryptocurrencies can also affect profitability, with significant fluctuations in value leading to financial losses. Operators must also keep enough cryptocurrency and cash reserves to meet customer demand, as shortages could damage their reputation and business.

Who is leading the global crypto ATM race?

Since the first crypto ATM debuted in a Vancouver coffee shop in 2013, the industry has evolved dramatically. Today, there are around 35,000 machines around the world, which is transforming the way people interact with digital currencies.

The United States has the largest share of crypto ATMs globally. Source: Coin ATM Radar

The United States houses approximately 30,000 crypto ATMs, representing 86% of all such machines worldwide.

Canada's crypto ATM scene has also flourished in recent years. As of Q1 2023, the country is home to 2,744 machines, while fellow European Spain has around 286 machines.

Down below, Australia has also been making waves. After adding 99 ATMs by the end of 2022, it surpassed El Salvador and Poland to become the fourth largest crypto ATM center with around 473 kiosks.

The future of crypto ATMs

Despite the many obstacles preventing the growth of the crypto ATM market, the space is expected to grow significantly in the coming years. The market, valued at $71.9 million in 2021, is projected to increase to $5.45 billion by 2030.

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However, for the sector to thrive, it will be crucial for operating companies to gain regulatory clarity. Physical and digital security measures must also be improved to protect the machines and the transactions they facilitate. This includes strong cybersecurity measures to prevent digital attacks and adequate physical security to prevent attempted theft.

Finally, efforts must be made to reduce the operating costs of operating these machines. This could involve developing more profitable kiosks, optimizing cash handling processes, and exploring alternative business models. So, as we head towards a future powered by crypto-enabled technology, it will be interesting to see how the future of the crypto ATM market continues to evolve and grow.