Why are BTMs on the rise as bitcoin slumps?
Through much of the last year, crypto assets lost over 50% of their value, dropping to $8000 from $17400. At the end of 2018, cryptocurrency prices saw a further dip to 3000$. This market downturn in digital asset values created waves of negative sentiment. But one crypto business has managed to thrive in the wake of plummeting valuations – Bitcoin ATMs. According to DataLight, a crypto analytics platform, crypto ATMs doubled in number between 2017 and 2018. Where is this mismatch? And why?
Here, we answer some of these pressing questions.
How do we explain this sustained interest in BTM businesses despite falling bitcoin prices?
BTM is a cash based business that charges users a percentage fee per transaction. This business model allows BTM makers to enjoy profits regardless of fluctuations in bitcoin prices.
Are BTMs indicators of the increasing adoption of cryptocurrencies?
BTMs may not enable a wider crypto adoption as believed, owing to their operating models and associated risks.
BTM operators charge a hefty 10-20% of the transaction amount as fees, a significant amount compared to the relatively lower fees of exchanges. Some BTMs also rely on exchanges to replenish their hot wallets in real time as and when user requests arise. Such reliance on exchanges introduces operational risks, as in this case where millions in cryptocurrencies were frozen in an exchange, following an unexpected event. These uncertainties, until addressed, are a damper to cryptocurrency adoption.
While BTMs are touted to be the missing link between the crypto market and ordinary consumers, huge transaction fees contradict this, meaning that it is still out of reach for people who are marginalized and under-banked.
Lack of security controls and regulatory oversight also deter policy makers and FIs across different geographies from welcoming BTMs. Unlike traditional ATMs with standard credit and debit card requirements for transactions, BTMs authenticate users with their ID cards and mobile numbers, leaving them vulnerable to fraudulent activities such as identity theft and illicit trading.
Do BTMs signal a shift in the vision and use of bitcoins?
Yes! Today, crypto enthusiasts buy bitcoin to hold it as a store of value, not for its accessibility or ability to facilitate global and secure transactions. BTMs are mainly transferring systems that enable instant and convenient access to bitcoins in exchange for fiat currency. While all BTMs allow users to buy bitcoins, only 30% allow users to sell bitcoin back.
The current trend of BTMs and bitcoins are following an interesting trajectory. Governments are kicking up a storm about the use and legality of bitcoins, and tech experts are claiming that they’re the next best thing. When the dust settles, we’ll finally see where the coins will fall. But one thing is for sure, cryptocurrencies are changing the economic landscape across the globe.