Crypto winter is coming for bitcoin ATM operator

The ATM is among the more ubiquitous gateways to crypto, found in truck stops and bars around the world, but that status has not saved them from the ills of the wider system, Crystal writes.

Driving the news: Top-5 bitcoin ATM operator Coin Cloud filed for Chapter 11 bankruptcy in Nevada on Tuesday, just steps behind its lender, Genesis Global.

Why it’s important: The number of access points for the crypto-curious may shrink with the disappearance of each odd little kiosk.

Context: Unlike regular ATMs linked to bank accounts, these kiosks take cash and then transfer bitcoin to a digital wallet. Some also allow the customer to sell their bitcoin.

• There were about 63,000 of them in the United States in September 2022, according to howmanybitcoinatms.com, a website run by academic researchers and volunteers interested in measuring bitcoin adoption.
• That’s about 1 for every 8 cash ATMs, enough that you’ve probably come across one.

Status: However, the crypto winter has – already taking a toll on lending platforms, exchanges and miners – come for ATM operators as well.

• While they enjoyed fat profit margins when things were going well—they charge exorbitant fees, sometimes as much as 20% per transaction—the strain of rapid expansion has caught up with them.
• From September 2020 to September 2022, the number of machines in the US more than tripled. And the costs of financing that growth are now tripping up profits amid the market downturn.
• Some financial regulators outside the US have also shut them down.

The last: Coin Cloud, with a 7.9% share of the US bitcoin ATM market and around 5,000 machines, looks like the crypto ecosystem’s latest casualty.

• It has $108.5 million in unsecured debt to Genesis Global Capital and $7.8 million in secured debt to Genesis Global Holdco.
• It also has expenses from a number of other unfortunate incidents, including alleged employee fraud, faulty hardware, faulty software and a hack.
• The company cut by 55 percent in the second half of last year.
• It is now seeking new financing or will sell its assets.

Elsewhere: Bitcoin Depot, the third-largest operator, is poised to list on a US stock exchange if it can secure its SPAC deal, which would bring a cash injection it could no doubt use.

• Kiosk transaction revenue, which drives the bulk of sales, rose 120% in 2021 from a year earlier to about $549 million, driven mainly by the higher number of kiosks in operation, according to the financial report.
• At the same time, revenue costs increased by 130%, the effect of expansion.
• As of September 30, 2022, it had approximately $3.5 million in working capital.

Zoom in: Bitcoin ATM operators do not custodian the customer’s assets.

• “This allows the customer to have full control over their own bitcoin, which is a huge advantage of our kiosk network,” Bitcoin Depot CEO Brandon Mintz told Axios.

Between the lines: It cannot capture customers’ bitcoin in the machine like other crypto platforms have.

Flashback: The world’s first bitcoin ATM, equipped with a palm scanner, was installed in a coffee shop in Vancouver, British Columbia, in October 2013.

• Robocoin, the same people behind it, placed one on a rooftop bar in Austin, Texas, in February 2014.