As crypto's spotlight grows, a bitcoin ATM maker looks to pounce

Cryptocurrency is cooking with a fall rally and lots of attention from recognizable companies like Square and PayPal. For Daniel Polotsky, any good news for bitcoin is welcome.

"The price is pumping. And whenever it goes up that's a sign of more interest," said Polotsky, CEO and founder of CoinFlip, a company that deploys bitcoin ATMs, which convert cash into digital currency.

Bitcoin has rallied for most of the fall, hitting record highs, boosted by investors looking for a hedge against inflation and betting PayPal's support for bitcoin trading will boost cryptocurrency valuations. The mainstream attention creates momentum for bitcoin ATMs.

That makes the time right for more bitcoin machines to hit the streets. The Chicago-based CoinFlip has ATMs in 45 states and Washington, D.C., and increased deployments in 2020 from 420 to about 1,300. It plans to have more than 4,000 deployed by the end of 2021, mostly in high traffic areas such as convenience stores.

Bitcoin ATMs in general are expanding quickly. Global bitcoin ATMs in 2020 expanded to more than 13,000 globally from about 5,000 at the beginning of 2019 and fewer than 2,500 at the beginning of 2018, according to CoinATMRadar. Most of those deployments are in the U.S., with bitcoin ATMs jumping from about 2,000 to more than 10,000 over the past two years.

"Cashless and on-demand payments are the biggest trends in the year-end. Bitcoin is the first cryptocurrency and a true blue-chip of the crypto market, so there's little wonder that most holders are excited to have more endpoints and opportunities to use their crypto assets on a daily basis," said Gregory Klumov, CEO and founder of Stasis, a Malta-based digital asset company. "The number of such ATMs grew significantly in 2020, and this trend will surely continue."

The number of bitcoin ATMs are of course well below the number of traditional ATMs. There are about 3.2 million ATMs in the world, according to RBR. But legacy ATMs were declining before the pandemic, dipping by about 1% per year in most markets. The pandemic caused ATM usage to decline quickly as consumers moved away from cash, and ATM makers retooled machines to accommodate digital commerce.

The decline of cash and legacy ATMs creates an opening for cryptocurrency ATMs, which are trending in the opposite direction. The lack of legacy ATMs and bank branches relative to the recent past contributes to a gap in access to financial services.

Writing for PaymentsSource, Marc Grens, president of DigitalMint, said bitcoin ATMs can serve financial inclusion by providing underbanked consumers a way to access a modern payment source, since most other cryptocurrency services are fully digital and require a bank account — and thus require paper money at the onset.

"Not everyone has a bank account," Polotsky said.

CoinFlip plans to add an ACH function to its bitcoin ATMs, which also support eight other cryptocurrencies. Other projects for the next year include a larger screen and a greater focus on two-way ATMs, which support both buying and selling.

In recent interviews, several executives at cryptocurrency payment companies say PayPal, Square, Venmo and projects at the card brands do not directly push cryptocurrency payments in the short-term, since most initiatives require a transfer from cryptocurrency to traditional currency before the transaction reaches the merchant. But there is a halo effect, or a sense of validation or credibility for cryptocurrency, Polotsky said.

"Bitcoin may not be fully ready to be a payment product yet, but with PayPal and Venmo's support is a step," Polotsky said. "It helps bitcoin ATMs because there's more interest."

Bitcoin's increased corporate demand is based on the fact that it's a better substitute for gold and a perfect treasury asset, Klumov said, adding bitcoin's use as a payment method relies on local payment infrastructure which still varies in different parts of the world. "Meanwhile, stablecoins are a better fit for merchant use and payment transactions, so I anticipate more developments in this direction coming in 2021," Klumov said.