KC Fed tracks healthy growth of crypto ATM industry despite predatory operators

The crypto ATM business is thriving in the United States, despite criticism for illegal or predatory

behavior, according to a report released by the Federal Reserve Bank of Kansas City. Crypto ATMs

have a growing customer base that could sometimes benefit from better education about crypto, the report concluded.

Crypto ATMs convert Bitcoin

and often other cryptocurrencies or stablecoins into or out of fiat. Like traditional ATMs, crypto

ATMs are usually placed in high-traffic locations and charge a fee for their service. That fee is one

of the sources of controversy about crypto ATMs, Kansas City Fed lead payments specialist Franklin

Noll wrote in the report. The average fee to use a crypto ATM is 15-16%, and operators may set an

unfavorable conversion rate, effectively driving fees up to 20% in many cases.

The report identified four user groups for crypto ATMs. Some were cash users who may be

unbanked, possibly by preference. Older people who found ATM technology more familiar than

that of crypto exchanges made up another segment. Some users were motivated by the

convenience of using an ATM, and others found ATMs provide greater relative anonymity.

Crypto ATMs require identification (“such as a phone number,” the report stated). Crypto ATMs are

money-servicing businesses, so they are subject to state and federal regulation, including Anti-

Money Laundering. This can be a major source of overhead costs for the operators, although

regulatory compliance is sometimes low in the industry, the report stated.

Minority groups and immigrants make up a significant user group for the ATMs. Immigrants

tend to buy crypto through ATMs to use in person-to-person transactions such as remittances:

“One explanation for this usage may be that the cost of using cryptocurrency obtained from a

BTM [Bitcoin ATM] in a remittance may be comparable to the cost of sending a remittance via third

parties using cash, when factoring in convenience, time savings, and transactional certainty and speed.”

The crypto ATM industry is often accused of predatory inclusion, that is, “disguising high-risk,

high-cost services as ways for the financially disadvantaged to gain entry to lucrative financial

investments.” It added, “[T]he losses to uneducated crypto investors using BTMs to purchase

volatile cryptocurrencies could be substantial.”

The report also cited Chainalysis data showing that victims of scams moved $345 million through crypto ATMs in 2022. “The industry’s role in facilitating money laundering and scams may pose

significant risks to the public,” the report concluded.

Industry statistics are rare and unreliable, but it is clearly growing after a COVID-related industry

downturn, according to the report. Operator Bitcoin Depot went public in July and saw a significant revenue jump.