CEO Of The World’s Largest Bitcoin ATM Operator Sees The Industry As Ripe For Consolidation
Bitcoin Depot is the world’s largest Bitcoin ATM operator.
The company went public in July, is well capitalized and may be looking to acquire smaller operators struggling with key operational challenges.
A lot has changed since Brandon Mintz bought his first bitcoin on what he calls a “crappy website” in 2013.
He is now the CEO of Bitcoin Depot, the world’s largest Bitcoin ATM operator, which he founded three years after that first crypto purchase. The company went public in July and listed its shares on the Nasdaq after a merger with a Special Purpose Acquisition Company (SPAC). Now Mintz says he sees lower profit margins for mom and pop operators as competition intensifies. In the crypto ATM space, the world is teeming with almost 40,000 machines, around 6,400 of which are owned by Bitcoin Depot. That’s why the 29-year-old manager, whose company now has access to the capital market, is ready to buy the little guy.
“Before Covid… there were a lot of new entrants into the bitcoin ATM industry, a lot of small operators,” Mintz said in an interview. “If you had everything ready to run a bitcoin ATM, you could put one on a busy street corner in a big city, and that would almost be like a guarantee that you would do well enough to be profitable.”
The “cash cow” quality or reliable profitability of the bitcoin ATM business may have been the norm prior to 2020, but This year, the total number of crypto ATMs exploded exponentially from just over 6,000 machines to a peak of almost 40,000 worldwide in 2022.
Crypto ATM customers are typically unbanked or ill-banked – they have lack of full access to financial services due to poverty, immigration status, or other distrust of the mainstream financial system. Without traditional banking relationships, they cannot buy cryptocurrencies from online exchanges like Coinbase or Binance.
Although the process of using a crypto ATM can vary, users typically only need to carry cash, a phone, and ID. (Additional requirements may apply depending on transaction amount.)
“For us, it’s your first and last name, phone number, email address, and we’ll walk you through the sanctions check,” Mintz explained. “You must also confirm that you are the owner of the provided wallet address and that you are not sending bitcoins to third parties.”
According to market research site Global Information, the crypto-ATM sector is expected to be worth $117 million by 2030 grow to $5.5 billion – though Mintz says small players are likely to be squeezed out as the industry matures.
“With the competition these days… you have to have a strong brand that’s recognizable,” Mintz said. “Many of the small operators have realized over the past year that it will be very difficult to compete. Many of them, anecdotally from conversations, ponder: “Should I try to keep up, or should I exit and sell my portfolio to a larger company like Bitcoin Depot?”
Case in point: In 2019 the company acquired one, like Mintz called it a “battered” Texas operator called DFW Bitcoin, which owned 10 kiosks.
“A lot of people don’t have compliance staff. They don’t even have a website,” Mintz said. “It could literally just be a man and his brother.”
When the regulators come knocking
Lack of strict compliance is one of the most common reasons for crypto ATM operators to fail. Despite the surge in ATM installation in recent years, March saw the industry’s largest drop in ATMs as more than 3,600 were shut down, according to crypto ATM data site Coin ATM Radar.
It’s not clear whether the high number of closures is due to the bankruptcy in February of a major operator called Coin Cloud – a company with more than 4,000 Bitcoin ATMs in the US and Brazil – or a larger security incident at General Bytes, the largest crypto ATM maker according to Coin ATM Radar, or a combination thereof.
It is clear that many small operators face difficulties in complying with the regulations. In February, the UK’s Financial Conduct Authority (FCA) took steps to shut down all 27 crypto ATMs in the country because none had registered with the regulator.
Bity, a small operator in Switzerland, has been ordered by the country’s Financial Markets Supervisory Authority (FINMA) to establish the identity of any user involved in transactions over 1,000 francs (approximately $1,150 US) within a 30-day period is. Bity vowed to take action against FINMA over the matter, and the seemingly undercapitalized company used crowdfunding to raise money for its law firms.
Even larger firms like Bitcoin of America have gone out of business due to licensing issues and scams, particularly in Connecticut and Ohio.
Mintz says he recognized early in the company’s history that compliance was critical to Bitcoin Depot’s success.
“My goal has always been to develop the strongest compliance program and hire really good compliance staff, including a compliance officer who I hired early on in the company,” recalls Mintz. “We have always strived to go beyond legal requirements.”
This early focus on compliance may have been key to Bitcoin Depot’s current success. The company says it’s on track to hit about $700 million in revenue this year. With that kind of capital in such a competitive market, Mintz will likely have the best choice for potential acquisitions.
“We have the best reputation and the best access to capital,” Mintz said. “More than ever, we have the ability to consolidate the industry.”
UPDATE (11 Aug 14:30 UTC): Adds details on Coin Cloud’s bankruptcy in paragraph 13.
