What are Bitcoin ATMs and their business models

Released in 2009, Bitcoin was created as a secure, efficient, and borderless means to exchange value.

Despite numerous criticisms and negative affiliations, the pioneer cryptocurrency has seen massive adoption rates by individuals and institutions as the world races to embrace the revolutionary new money system.

The first Bitcoin ATM was launched on October 29, 2013, at Waves Coffee Shop in Vancouver, Canada. However, it wasn’t until 2020, that Bitcoin ATMs experienced a significant surge in popularity and became widely available. Since then, it has increased by over 800 per cent, reaching more than 32,000 BTMs as of November 2022.

What are Bitcoin ATMs

Bitcoin ATMs, also called BTMs, allow users to buy or sell Bitcoin directly using cash or credit cards. Unlike conventional ATMs, BTMs do not connect to the user’s bank account but are powered entirely by the blockchain. This implies that the machine connects directly to the user’s cryptocurrency wallet. There are over 30,000 BTMs in the United States alone, making it an emerging means of crypto exchange. Although Bitcoin ATMs are typically available to anyone, some may require customers to have an account with the ATM operator. Also, depending on the machine you interact with, you may need to complete a KYC process.

Bitcoin ATMs offer the convenience of both buying and selling Bitcoin. With bidirectional BTMs, you can easily buy Bitcoin with cash or exchange your crypto for fiat money. For Bitcoin withdrawals, once you insert the amount of Bitcoin you want to purchase, the Bitcoin equivalent is transferred to your chosen wallet address. In the latter case, you can receive a QR code to send Bitcoin and have cash dispensed.

The purchase price will depend on the current market rate, and an additional processing fee is usually charged for each transaction on a BTM. Transaction fees on BTM exchanges typically average between 5-15 per cent. In addition to these transaction fees, some BTMs may charge a miner’s fee on all BTC exchanges.

How to use Bitcoin ATMs

Bitcoin ATMs are a swift and easy option for exchanging Bitcoins and other cryptocurrencies with fiat, making them highly appealing. Their widespread availability also guarantees access to your wallet wherever possible, offering a fast and easy way to access money, even if you don’t have access to your cryptocurrency exchange software like Binance. This proved to be useful in cases when people don’t want to deal with slow transactions, lines, work hours and high fees. Instead of going to the bank, depositing money, and then using crypto exchanges like Binance or Coinbase, they can simply use a BTM and exchange cash directly into their Bitcoin wallet.

Digital services are a popular category for cryptocurrencies. Games, apps, and video game cosmetics such as skins are all popular commodities paid with crypto. Regulated or unregulated services that people want to stay anonymous when paying for them are regularly accepting crypto as a form of payment. This includes online live casino games for Canadians that can be enjoyed by making Bitcoin deposits, VPN services, private internet services and similar.

For merchants, Bitcoin ATMs are a great way to guarantee customer purchases. With the massive adoption of crypto today, more and more people will continue to hold money in their crypto wallets, and it is anticipated that more people will use them for face-to-face transactions in the years to come. However, some customers may face difficulty if the crypto exchange they use is unavailable when they need to make a purchase. To avoid losing sales due to this issue, Bitcoin ATMs can provide an alternative option for customers who prefer using crypto wallets over fiat.

Starting costs for Bitcoin ATM

If you want to purchase a BTM for a business, ensure you get it from a trusted source. It would cost between $3000 and $14,500 to buy a Bitcoin ATM, depending on the model you’re looking for. Factors like location, regulatory compliance costs, and operating environment usually influence the cost of getting a BTM. Also, look out for additional costs like import duties, installation, energy bills, and taxes.

When selecting a machine, it’s essential to consider the features it offers. Some machines have additional features like ID document scanners and fingerprint integration that others may not have. Your choice of machine should be based on what you want to provide for your customers. Currently, there are more than 600 BTM manufacturers to choose from.

Buying a Bitcoin ATM may not cost you anything if you’re a brick-and-mortar business owner. Some Bitcoin ATM operators will cover the cost if you show that your business is established and successful. Once approved, you can order an ATM for your business. You just need to provide a suitable location and power source. The profit split is determined beforehand; having an ATM can increase your revenue and increase your business’s customers.

Legal & Regulations

There are federal and state-level regulations for BTM owners/operators. While federal regulations are pretty much widespread, state regulations vary from state to state.

Bitcoin ATMs are defined as money-services businesses (MSBs) by the US Treasury’s Financial Crimes Enforcement Network (FinCEN). FinCEN is the regulatory body for all cryptocurrency ATMs and administers the Bank Secrecy Act (BSA). FinCEN regulations require all BTM operators to register with them. Registration can be done online on the agency’s website and must be within 180 days of your establishment and renewed every two years.

Registration with FinCEN requires compliance with all BSA anti-money laundering laws. As a BTM operator or owner, after registering with FinCEN, you must develop and implement your Anti-money laundering (AML) and Know your customer (KYC) compliance programs for customers. These documents are not necessarily to be submitted but must be presented upon request. They outline efforts you’ve put in place to prevent money laundering or other financial crimes. The FinCEN outlines essential items that must be contained in your AML documents, which are available on the FinCEN website.

Compliance with the IRS is also crucial to your BTMs success. The IRS may likely pick BTMs randomly for audit, so you should be prepared for this at any time. Even if the IRS finds you fully compliant, they may still request information regarding your BSA programs, so once again, make sure all FinCEN regulations are implemented in your Bitcoin ATM.

How profitable are Bitcoin ATMs?

Bitcoin ATMs can be quite profitable if you start on the right foot. Compared to traditional bank ATMs, they offer a higher commission on each transaction on average. It’s worth noting that the number of transactions per machine has been consistently rising in recent years, resulting in a corresponding increase in revenue for each BTM, and a decline of new BTM installations.

BTMs’ profitability is hinged on factors like location, number of daily transactions, specific share agreements between partners and operators, and marketing used to promote it in the area. Operators can expect to earn a gross profit of $1,000 to $3,000 per month for each machine, with an average commission rate of 5.5 percent and gross monthly earnings of $30,000, according to estimates from CoinATMRadar.

It may not be all smooth sailing, though.

The primary risk associated with Bitcoin ATMs is exchange rate fluctuations. To operate a Bitcoin ATM smoothly, you must reserve between $10k and $20k worth of BTC. The problem is that in the time between when the crypto was purchased and when it is sold, you may experience a price drop which means you would be running at a loss during these periods.

Further, Bitcoin ATMs are a frequent scam target due to their anonymity and accessibility. Unfortunately, scammers and fraudsters take advantage of this. The FBI reported increased scams in 2021 where victims are directed to retrieve or send money through Bitcoin ATMs under pretenses. If someone falls for such a scam, tracking the scammer and recovering the funds can be challenging. To avoid this, some BTMs have tightened their KYC measures and required users to have an account.

It doesn’t end there. Exchanging currency at a Bitcoin ATM can come with high transaction fees, ranging from 5 to 20 percent. In contrast, digital currency trading platforms generally impose significantly smaller transaction fees, often below 1 percent. This could make BTMs unattractive to people looking to withdraw fiat or buy/ transfer cryptocurrencies.

Should I invest in a BTM?

With crypto adoption rapidly expanding globally, more people will need a way to access or use their crypto wallets seamlessly. This demand for crypto-to-fiat conversions makes owning or hosting a Bitcoin ATM worth every penny.

The pros far outweigh the cons.  Also, investing in Bitcoin ATMs can help with global financial inclusion, especially since they are becoming more popular.

They will continue to play an important role in finance, and getting in at this time will further guarantee exponential growth as the rest of the world catches up to the new economic normal.

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