This Bitcoin ATM Company Goes Public: 2 Green Flags and 1 Red Flag

In a story so tailor-made for the height of 2021’s bull market that you might think it was generated by a bot that used some of the year’s most popular investment themes, a Bitcoin (BTC -0.45%) ATM operator goes public via SPAC. GSR II Meteora Acquisition Corp. (GSRM -0.05%) have reached an agreement to take Bitcoin Depot public, valuing the nation’s largest Bitcoin ATM operator at around $885 million.

Since the peak of the SPAC boom in early 2021 and crypto’s peak in late 2021, both types of assets have fallen on hard times as rising interest rates, rising inflation and an uncertain economy have reduced investor appetite for risky assets. However, a busy merger like this will still get a lot of attention from investors. So is it more sewing than beef, or is there some substance here? Here are two green flags and one red flag for Bitcoin Depot.

Image source: Getty Images.

Bitcoin Depot is profitable

Founded in 2016, which is old in crypto terms, Bitcoin Depot says it is North America’s largest provider of Bitcoin ATMs, with around 7,000 kiosks across the US and Canada. Bitcoin ATMs can be found in places like Circle K, a popular convenience store in much of North America. Bitcoin Depot estimates that it has about 20% of the Bitcoin ATM market share in the US and about 8% in Canada.

Unlike many companies that went public via SPACs and have seen their shares drop precipitously as some of the scum left the market, Bitcoin Depot is profitable, at least on a non-GAAP (adjusted) basis. In 2020, the company earned $21 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and increased this number to $29 million in 2021. Bitcoin Depot makes money by charging ATM fees for these transactions.

Bitcoin Depot is acting during a crypto bear market

Bitcoin itself is down 53% year to date, and many other cryptocurrencies are down even more. This has caused shares of high-profile crypto-related stocks such as Coin base (NASDAQ:COIN) to sell off this year to 78% as trading volume has fallen. However, Bitcoin Depot has surprisingly bucked the trend here and the business is not only surviving but thriving during the crypto winter. During the second quarter of 2022, Bitcoin Depot reported record revenues and EBITDA. CEO Brandon Mintz attributes the record results during a crypto bear market to the growing number of real-world use cases for crypto. In August, Bitcoin Depot reported that over the past 12 months, they achieved $623 million in sales, for a 51% year-over-year gain. The company also increased EBITDA from $14 million during the first half of 2021 to $22 million during the first half of 2022.

Bitcoin Depot’s transaction volume appears to be uncorrelated with the price of Bitcoin. For example, while crypto prices fell from the first quarter of 2022 to the second quarter, Bitcoin Depot saw its transaction volume rise to an all-time high.

The biggest concern: Regulatory scrutiny

There’s a lot to be excited about with Bitcoin Depot, thanks to the company’s profitability and momentum. However, there is also reason for caution. The Bitcoin ATM industry could be a target for regulators, as skeptics claim that crypto ATMs are often used for money laundering. The FBI has warned consumers that Bitcoin ATMs are often used by bad actors to facilitate fraud. Fraudsters use the ATMs to put a crypto twist on a variation of an ancient scam where they contact unsuspecting victims by phone and instruct them to deposit money at a kiosk and then trick or coerce them into sending Bitcoin to their wallet via a QR code . , often under the guise of helping a relative who is in trouble and needs money. However, CEO Brandon Mintz says the company employs extensive compliance measures at its kiosks, including Know Your Customer (KYC) and Anti Money Laundering (AML) programs. The company reports that it uses procedures such as requesting identification, a wallet check, OFAC screening and more before facilitating transactions.

Although its use is legitimate, some critics say crypto ATMs can take advantage of financially disadvantaged consumers (who may turn to them because they don’t have access to online banking accounts) with high fees. That said, many online crypto brokerages also hit consumers with high fees, so I don’t think Bitcoin Depot should be singled out as a target in this area.

An interesting risk-reward profile

When I first heard about a Bitcoin ATM operator looking to go public in 2022, I was somewhat skeptical, figuring they had missed the boat on what would have been a big payday in 2021. But I have to give credit where credit to be paid, and Bitcoin Depot looks like a more interesting investment opportunity than I first thought. The company is profitable on a non-GAAP basis and growing revenue and profits even though the broader crypto space is in a bear market, so it deserves credit for that. Transaction volume has remained strong even as the price of Bitcoin has plummeted, showing that this business may be more robust than one might think at first glance. Furthermore, the company has many growth opportunities ahead, such as the BD Checkout option, which allows customers to purchase Bitcoin at retail locations without using an ATM. It also has growth opportunities in the form of international expansion and expansion into states like New York, where it is not yet approved for operation but could prove lucrative.

There is still risk here, especially given the possibility that the industry and the company may face continued regulatory scrutiny and the fact that this is an early investment. Overall, I am more bullish on Bitcoin Depot than I expected to be before learning more about the company. For risk-tolerant investors, I believe it offers an intriguing risk-reward profile that is skewed toward the positive.