(Bloomberg) — As digital assets roar back into the mainstream after an extended period of price declines, experts are warning about the risks of financial predation baked into of the industry’s most analog expressions: machines that convert cash to Bitcoin.
Most Read from Bloomberg
Bitcoin teller machines, or BTMs, are physical kiosks that offer customers access to crypto conversions and are commonly located at gas stations, liquor or convenience stores and other places you might find a traditional automated teller machine for credit and debit cards.The BTM industry surged during the pandemic: The number of installed units increased more than five-fold over four years to about 31,100 units nationwide, according to Coin ATM Radar. But a closer look into the BTM boom revealed that the machines are often disproportionately located in areas with a majority of Black and Latino residents, charging fees as high as 22% per transaction.
Bitcoin Depot, the largest US operator with about 7,300 BTMs as of April 8, charges some of the highest fees in the industry while touting financial inclusion, a concept that ensures that all customers, regardless of their socioeconomic standing, have access to such financial services as savings, credit and insurance. Over 80% of Bitcoin Depot’s customers earn less than $80,000 a year, according to a November 2023 investor presentation from the company.“It looks like a good thing, but there’s a whole lot of downsides to it,” Franklin Noll, a lead payments specialist at the Federal Reserve Bank of Kansas City, said. “It’s like a payday lender saying ‘I can give you cash today for your check. I’ll charge you 25% or 30% for it, but here you go.’”
A Bloomberg review of Bitcoin Depot locations and data from the Census Bureau shows that states with proportionally large Black and Latino populations tend to have more of the company’s BTMs, especially in southern states like Georgia and Texas. Bitcoin Depot President and Chief Executive Officer Brandon Mintz dismissed any suggestion that the company targeted areas with underrepresented groups in deciding where to place its machines.
“Never in our history have we once targeted an area based on any sort of racial profile,” Mintz told Bloomberg News. “Our focus is targeting areas that have low competition and that have populations that can support a Bitcoin ATM profitably.”
Placing the BTMs often requires the cooperation of local shop owners, though some are available at major gas stations and convenience stores like Circle K, Cumberland Farms and Jacksons Food Stores. Some machine operators pay the stores a small fee for the floor space. In other instances, store owners rent the machines from the operator.
Calls to stores in states across the country — including California, Indiana, New Jersey, and Maryland — yielded little knowledge about the BTMs. When asked how long the BTMs had been installed, the number of people who used them each day or about the kiosk’s transaction fees, workers deferred questions to store owners, who weren’t in, and rarely knew how the machine worked.
One restaurant owner in Essex, Maryland, who declined to give his name, said Bitcoin Depot paid $145 a month for the kiosk that was installed a month ago. Another store owner in New Jersey, who identified himself only as Jai, said his store received $200 a month for the kiosk, also operated by Bitcoin Depot.
A spokesperson for Bitcoin Depot said that the company encourages store owners to have kiosk users reach out to the company’s customer service directly should they have questions about the BTMs.
Fees at these BTMs vary from operator to operator; some include a flat transaction cost on top of a percentage fee based on the size of the transaction. Partly as a result of these fee structures, some researchers have described the BTM industry as a form of “predatory inclusion,” where a business helps customers get access to a service in exchange for a high, sometimes hidden, cost.
In Alabama, the concentration of Black and Latino residents within a mile radius of Bitcoin Depot BTMs is 20 percentage points higher than the broader state average, per a Bloomberg analysis of location data and the 2022 American Consumer Survey. In Dallas, BTMs are consistently located in areas where the highest percentages of Black and Latino people live.
States in the Northeast, including Connecticut and New Jersey, show a similarly strong relationship. The West and Midwest have notably less pronounced connections. Filings from Bitcoin Depot have stated that “demographic data” is a consideration when deciding where to install new machines. Mintz said that when the company refers to demographic data, it’s only referring to “population and…
Read More: Bitcoin ATMs Flood Black, Latino Areas, Charging Fees up to 22%