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Bitcoin ATM Companies Are Preying on the Poor

Bitcoin Depot has admitted to its investors that it relies on demographic data to strategically place its machines.

A bitcoin ATM is seen inside the Big Apple Tobacco Shop in New York City on February 8, 2021.

There’s a laundromat in a working-class immigrant community on the outskirts of Washington, D.C. that is much more than a place to wash and dry clothes. The store offers alternative financial services — bill payment processing, money orders and check-cashing services — charging for many transactions that most banks perform for customers at no extra cost.

Millions of people in the United States rely on services like those offered by the laundromat because they don’t have enough money to open bank accounts, with the potential for monthly fees to snowball into overdraft fees bleeding their modest income dry. But their reliance on stores like the Hyattsville, Maryland, laundromat leads them to incur up to thousands of dollars in additional costs every year. It’s the result of a phenomenon described by analysts and policy makers as people being either “unbanked” or “underbanked,” and it might be the most clear example of how, as the saying goes, it’s expensive to be poor.

The situation was supposed to change with the advent of cryptocurrency, according to the industry’s evangelists and their allies on Capitol Hill. They argued that the blockchain technology at the heart of crypto, which enables secure transactions through encrypted record-keeping on a public database, would lower the cost of offering basic services to the underbanked. But a closer look at the laundromat in Hyattsville, which prominently features a cryptocurrency ATM, shows how the industry has been able to fit seamlessly into the existing ecosystem of high-priced financial services used by people struggling to make ends meet.

The store’s cryptocurrency ATM charges up to 20 percent in exchange fees for Bitcoin purchases without disclosing the cost of the transaction to users, and is the product of a company called Bitcoin Depot, which has exploded in growth over the past few years, targeting low- and middle-income neighborhoods.

Truthout recently visited the laundromat to get a firsthand look at how the kiosk operates. To execute a conversion of $40 into Bitcoin, the company disclosed that it was charging a $3 service fee but didn’t mention that the exchange rate it offered was 20 percent less favorable to buyers than the going market rate. Users must check prices themselves from another source to discern the real cost of the transaction, as numerous run-of-the-mill people have noted in social media complaints.

“I deposited $334 anticipating to pay $3 handling fee,” one Twitter user noted, only to find that $67.40 “evaporated into Bitcoin Depot [sic] pocket … this is worse than loan shark [sic].”

“Do not use @Bitcoin_Depot,” another said, “they say they only take 3% fee but in reality take 23%. It’s total fraud and scam. Fuck @Bitcoin_Depot.”

Bitcoin Depot, which controls roughly 20 percent of the crypto ATM market share in the United States, is far from the only one to employ shady practices while hawking their wares to the underbanked. Coin Cloud — number two in size to Bitcoin Depot with 15 percent control of the U.S. crypto ATM market — similarly charged 20 percent for Bitcoin exchanges without disclosing the spread between its price and the going market exchange rate, as verified by Truthout at a kiosk in Northeast Washington, D.C.

Another major retail crypto provider, Coinme, charges a markup of only about 7 percent, and the firm’s iPhone app alludes to the existence of a market rate with references to recent Bitcoin highs and lows. But in other ways, Coinme has uniquely predatory practices. As a partner of the payment processing giant MoneyGram, Coinme is used by the payday lending and check-cashing company ACE Cash Express to sell cryptocurrency, a highly volatile and scam-ridden asset class, to its clientele. A study published in November by the Bank of International Settlements estimated that roughly three-quarters of all Bitcoin buyers between 2015-2022 lost money on their purchase, and that price spikes tend to attract new buyers only after their likelihood of making money on the asset has decreased.

Coin Cloud also boasts of having a partnership with ACE, though it appears to be based solely on the former placing its kiosks at the latter. The crypto company’s decision to highlight its ties with ACE contrasts sharply with its TV advertisement, released in July 2021, featuring legendary Black film director Spike Lee declaring: “Digital currency is viable for not just people of color, but anybody who has been historically excluded from traditional financial systems.”

Both MoneyGram and ACE have faced regulatory scrutiny for exploiting those “excluded from traditional financial systems.” The Consumer Financial Protection Bureau (CFPB) has repeatedly gone after each firm with the most recent punishment for each coming last year. In July, the agency sued ACE for allegedly “concealing free repayment plans from struggling borrowers” and racking up $240 million in revenue in the process. The CFPB sued MoneyGram in April for allegedly delaying remittance transfers in violation of federal law. Both companies are owned by private equity firms.

Like Bitcoin Depot, ACE’s partners Coin Cloud and Coinme are also the subject of intense criticism that can be easily found on social media where many ripped-off consumers take their frustration hoping that it will in some way lead to restitution or greater awareness.

“Literally just created a Twitter just so I could warn anyone that thinks of using you guys,” one Twitter user told Coin Cloud. “Never had to wait 3 plus hours w/ any exchange wallet & or pay the outrageous fee.”

“This exchange is the scum of crypto industry,” another user said of Coinme. “Advertise 4-5% fees but you’re really paying 10-12%. Check quoted prices at time if [sic] purchase. They will steal your funds and lick your account for no reason.”

Neither Bitcoin Depot, nor Coin Cloud, nor Coinme responded to requests for comment on this story.

During crypto’s most recent boom cycle, the cryptocurrency ATM industry exploded in the United States. The estimated number of cryptocurrency ATMs in the country increased by a factor of almost eight: from 4,203 in January 2020 to 33,385 in January 2023. Growth slowed in the middle of 2022, after the cryptocurrency market started taking a series of nosedives that saw asset-holders lose some $2 trillion, roughly two-thirds of the entire market’s paper value, over the course of seven months, from November 2021 until June 2022.

But even if speculative efforts pan out for a slim minority of crypto buyers, the ATM industry quietly takes its pound of flesh. Companies typically charge between 6.5 percent and 20 percent in transaction fees buried in exchange rate figures, as observed by Truthout. And whether the companies fully disclose the cost or not, the price is much higher than the service charges imposed by conventional ATMs or even online crypto exchanges, which are fraught with their own problems, as the FTX collapse has demonstrated.

It’s also been known for years that the crypto ATM industry has had a focus on low-income neighborhoods. The Detroit Free Press reported on the issue in June 2018, and The Atlanta Journal-Constitution followed suit in February 2020. And while most of the interest from Washington has concerned the potential for crypto ATMs to facilitate criminal activity by enabling money laundering and ransomware hacks, regulators appear to be catching up. One report by the U.S. Treasury published in September 2022 cited the Free Press and Journal-Constitution reporting to classify the proliferation of crypto ATMs as an example of financial service companies targeting “vulnerable communities, especially low-income communities and communities of color … using deceptive sales tactics and marketing.”

Bitcoin Depot has practically admitted that it employs predatory tactics. The company has disclosed to investors that it relies on “demographic data” to strategically place its machines, and CEO Brandon Mintz has separately said that the company’s clientele is “more in that lower, middle income range. A lot of the people who are underbanked and unbanked prefer to use cash, so we try to focus on those areas.” At the same time, Bitcoin Depot also disclosed to investors that the company itself is somewhat wary of cryptocurrency as an asset class; specifically, that it uses “a sophisticated cryptocurrency management process to reduce our exposure to volatility in cryptocurrency prices by maintaining a relatively low balance of cryptocurrency at any given time.”

In other words, the company appears to pump cryptocurrency, with a focus on selling in working-class neighborhoods, before dumping whatever leftover crypto it still has on the books. There is legal ambiguity over the “pump” matter because Bitcoin Depot, like many other cryptocurrency ATM companies, denies that it offers investment advice in its fine print disclosures, in an apparent bid to insulate itself from regulatory enforcement actions by the Securities and Exchange Commission (SEC). In disclosures to investors, company executives said that the SEC could effectively shut down their operation “if we were to be deemed an investment company under the Investment Company Act of 1940.”

Although none of the cryptocurrency ATM companies mentioned in this article responded to requests for comment, policy makers had more to say in response to Truthout’s findings.

“Many Americans, especially those that have been turned away by banks time and time again, want financial products that work for them,” Sherrod Brown (D-Ohio), chair of the Senate Banking Committee told Truthout. “Unfortunately, as with payday lenders, they have been told that cryptocurrencies are helping build a more inclusive economy — but none of those promises have ever materialized. It is critical that we educate and protect consumers on cryptocurrencies’ risks and I will continue to work with my colleagues to do just that.”

Rep. Rashida Tlaib, (D-Michigan), who is on the House Financial Services Committee and has spoken about the impact of predatory crypto industry practices on her Detroit constituents, said she is “deeply concerned by the rise of so-called crypto ATMs.”

“The cryptocurrency industry has spent billions on bullying regulators, lobbying Congress — and inundating my neighbors with advertising for get-rich-quick schemes,” Tlaib told Truthout. “Dressing up dangerous and predatory products in new technology and fancy buzzwords does not give financial companies a free pass to avoid regulation and consumer transparency.”

Both Brown and Tlaib are urging their fellow congressional representatives to act to protect consumers, echoing calls made on January 24 in an op-ed written by Representatives Chuy Garcia (D-Illinois) and Stephen Lynch (D-Massachusetts). Garcia and Lynch noted that the recent crypto downturn has “disproportionately harmed low-income, Latino, Black, and first-time investors.”

Neither the SEC nor the Commodity Futures Trading Commission responded to a request for comment on general questions about their power over cryptocurrency ATM companies.

The CFPB declined the opportunity to comment, but highlighted various government agencies’ stated concerns about crypto ATMs being used to facilitate money laundering. The agency also pointed to its own consumer complaint database, a separate CFPB analysis of crypto-asset complaints, and flagged the Treasury Department’s report citing the crypto ATM industry as an example of a financial service provider preying on “vulnerable communities.”

For two experts who have been closely following cryptocurrency industry practices for years, one term came to mind: predatory inclusion. Brookings Institute fellow Tonantzin Carmona explained that the concept describes marginalized communities being granted new opportunities to better their material conditions, but with greater potential pitfalls than those that come with chances given to their white, upper-class counterparts.

“Coin ATMs are such a great example of predatory inclusion,” Carmona said, with their marketing, their opaque fee structure, and the fact that they dispense high-risk financial assets. The industry ends up “monetizing inequities” rather than creating the low-cost alternative that it promised, she noted.

Mark Hays, senior policy analyst with Americans for Financial Reform, said predatory inclusion comes from the overall cryptocurrency market being based on a form of extraction capitalism. The industry has yet to demonstrate a clear use-value, other than facilitating both blue-collar and white-collar crime. Hays described the profitable crypto business model as: “Let’s get people’s cash into this market, pump up liquidity, get what we need and get out. Who cares if it crashes?”

He told Truthout that policy makers have allowed the situation to continue, in part, because they’ve been wowed by industry claims of novel innovation. “It’s deregulation being done in the name of innovation, which is something we need to be wary of,” Hays added.

As numerous analysts have noted, similarities between today’s cryptocurrency market and the subprime mortgage crisis have been maddening. Dangerous mortgage products were feted by lawmakers and regulators in the run-up to the Great Recession. In 2005, for example, then-Federal Reserve Chairman Alan Greenspan praised subprime mortgages for granting credit to “once more-marginal applicants.” Greenspan’s fellow travelers on the right would then go on to scapegoat this segment of the market to explain away their ideological failure.

“Why did they make these investments?” Carmona asked rhetorically. “You had folks like Alan Greenspan promoting these things.”

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