Bitcoin Depot is the world’s largest bitcoin ATM operator.
The company went public in July, is well-capitalized, and may seek to acquire smaller operators that struggle with key operational challenges.
A lot has changed since Brandon Mintz bought his first bitcoin on what he describes as a “crappy website” in 2013.
He’s now 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 – listing its shares on Nasdaq after a merger with a special purpose acquisition company (SPAC) – and now Mintz says he’s seeing slimmer profit margins for mom-and-pop operators as competition heats up. The crypto ATM sector is teeming with nearly 40,000 machines worldwide, about 6,400 of which belong to Bitcoin Depot. Consequently, the 29-year-old executive – whose company now has access to the capital markets – says he’s willing to buy out the little guy.
“Before Covid… there were a lot of new entrants into the bitcoin ATM industry, a lot of small operators,” Mintz told CoinDesk in an interview. “If you had everything in place to operate a bitcoin ATM, you could put one on a busy street corner in a big city, and it was almost like a guarantee that you would do decent enough to be profitable.”
The “cash cow” quality, or reliable profitability of the bitcoin ATM business may have been the norm before 2020, but that year, the total number of crypto ATMs exploded exponentially from just over 6,000 machines to a peak of nearly 40,000 globally by 2022.
Crypto ATM customers are typically unbanked or underbanked – lacking full access to financial services due to poverty, immigration status or general distrust of the mainstream financial system. Without traditional banking relationships, they can’t purchase crypto from online exchanges like Coinbase or Binance.
Although the process of using a crypto ATM may vary, users are usually only required to have cash, a phone, and a piece of identification. (There may be additional requirements depending on the transaction amount.)
“For us, it is your first and last legal name, your phone number, your email address, and we run you through sanction screening,” Mintz explained. “You also have to verify you own the wallet address being provided personally, and you’re not sending bitcoin to a third party.”
The crypto ATM sector is now projected to grow from $117 million to $5.5 billion by 2030, according to market research site Global Information – although Mintz says as the industry matures, small players will likely get squeezed out.
“With the competition these days… you have to have a strong brand that is recognizable,” said Mintz. “A lot of the small operators realized over the past year that it’s going to be very difficult to compete. A lot of them, anecdotally from conversations, are thinking about, ‘Should I try to compete, or should I get out and sell my portfolio to some larger company such as Bitcoin Depot?’”
Case in point, in 2019, the firm acquired what Mintz described as a “struggling” Texas-based operator named DFW Bitcoin that owned 10 kiosks.
“A lot of people don’t have any compliance staff. They don’t even have a website,” Mintz said. “It literally may just be one guy and his brother.”
When regulators come knocking
The lack of robust compliance is one of the most common reasons crypto ATM operators fail. Despite the surge in ATM installations during the past couple of years, March saw the industry’s largest decline in machines, as more than 3,600 of them were shut down, according to crypto ATM data site Coin ATM Radar.
It’s not clear if the high number of shutdowns was due to the February bankruptcy of a large operator by the name of Coin Cloud – a company with more than 4,000 bitcoin ATMs across the U.S. and Brazil – or a major security incident at General Bytes, the largest manufacturer of crypto ATMs, according to Coin ATM Radar, or some combination.
What is clear is that many small operators struggle with regulatory adherence. In February, the U.K.’s Financial Conduct Authority (FCA) took steps to shut down all 27 crypto ATMs in that country because none had registered with the regulator.
Bity, a small operator in Switzerland, has been told by the country’s Financial Market Supervisory Authority (FINMA) that it must establish the identity of any user involved in transactions exceeding 1,000 francs (roughly $1,150) over a 30-day period. Bity vowed to fight FINMA regarding the issue, and the seemingly undercapitalized firm turned to crowdfunding to raise money for its legal bills.
Mintz says he realized compliance was critical to Bitcoin Depot’s success early in the company’s history.
“My goal was always to create the strongest compliance program and hire really good compliance staff, including a compliance officer that I hired very early on in the business,” Mintz recalled. “We’ve always strived to go above and beyond what’s legally required of us.”
That early focus on compliance may have been the key to Bitcoin Depot’s current success. The company says it’s on track to bring in around $700 million in revenue this year. With that kind of capital in such a competitive market, Mintz will likely have his pick of the litter when it comes to potential acquisitions.
“We have the best reputation and we have the most access to capital,” Mintz said. “We have the ability more than ever to consolidate the industry.”
UPDATE (Aug. 11, 14:30 UTC): Adds details about Coin Cloud bankruptcy in 13th paragraph.