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Bitcoin ATMs showing up in odd spots

McClatchy-Tribune Information Services

July 9, 2018


Walk into the Shell gas station on the corner of Nine Mile and Greenfield roads in Oak Park, Mich., head toward the back of store, and there, next to the Better Made potato chips, sits an ATM selling bitcoin.

"The fastest and most secure way to turn your bitcoin to cash and your cash into bitcoin," reads the screen.

Nothing is all that secure about bitcoin, a cryptocurrency that had one incredible boom in 2017 but now is looking like a lingering bust.

Bitcoin traded as high as nearly $20,000 in late 2017 — up from just $1,000 early that year.

But it’s down nearly 70 percent in the past six months. Bitcoin’s price was around $6,500 Friday.

Bad news keeps piling up. A financial regulator in Japan in June ordered cryptocurrency exchanges to stop creating new accounts while improvements are made to stop money laundering and terrorist financing.

So why, exactly, would anyone want to get in on the bitcoin frenzy at a local gas station? The bitcoin ATMs in metropolitan Detroit often show up in the oddest spots, including party stores, many in the neighborhoods where most people aren’t flush with cash.

In mid-June, there were 80 Bitcoin ATMs in metro Detroit and about a dozen elsewhere in Michigan, according to Coin ATM Radar. There were an estimated 2,032 bitcoin ATMs in the United States. More frequently, bitcoin ATMs only sell bitcoin and won’t buy it back. But more ATMs that handle both transactions are popping up.

Nationwide, bitcoin ATMs are cropping up in communities like Union Gap, Wash.; Fresno, Calif.; Chicago; Washington, D.C.; Charlotte, N.C.; Indianapolis. Louisville, Ky., and New York.

Bitcoin of America announced in May that it was expanding in five major cities and opening Bitcoin Teller Machines in Cleveland, Los Angeles, New Orleans, Philadelphia, and Washington, D.C. It already operates eight bitcoin ATMs in Detroit.

Why would anyone anywhere — let alone someone living in a financially challenged community — walk into a gas station to buy bitcoin? Are people treating the bitcoin ATMs as quick way to make fast cash? Another lottery machine? In a high-crime area might it be a money-laundering haven?

Andy Attisha, the owner of the Shell station in Oak Park, said the bitcoin ATMs at local stores offer a financial convenience for some people.

"People who use the machine most likely don’t have bank accounts," Attisha said.

Attisha said he’s paid a rental fee to have the bitcoin ATMs — run by Slon BTM — at his stores in Oak Park and an Exxon station in Wixom.

Some people bring in wads of cash to put into the bitcoin ATMs, Attisha said, speculating that they may be using it as a place to store their money — and later withdraw it when they need to pay bills.

The official reason given by some industry leaders for placing bitcoin ATMs in struggling neighborhoods is that they target people who don’t have bank accounts.

Low-income households are the most likely to manage their money by using financial services outside of the traditional banking system like check-cashing stores and payday lenders. Some are shut out of traditional banking services after strings of bounced checks and other troubles.

Bitcoin via a digital wallet is a way to convert cash into a digital account.

Michael S. Barr, dean of the Gerald R. Ford School of Public Policy at the University of Michigan, questions the validity of claims that bitcoin ATMs can help people who don’t use banks.

"That strikes me as not a safe or sound way of providing financial services to low-income people," Barr said.

Barr, who has written extensively on the challenges faced by low-income households lacking bank accounts, notes that bitcoin rises and falls significantly in value quickly many times throughout a day or week.

What happens if you take $500 in cash in bitcoin and the value drops to $300 in the next week?

"The idea of investing in bitcoin as a strategy for helping poor people, I think is really not a good idea," Barr said.

"Bitcoin has very volatile price levels, asset levels — and the last thing low income people need is more volatility, more uncertainty, in their lives."

Many do, of course, want more hope.

A bitcoin ATM at the Conant-Caniff Market in Hamtramck — a town ranked by one survey as the poorest in Michigan with a median household income of $23,609 a year — stands next to "The Lucky Spot" Michigan lottery ticket machine.

"People may be viewing bitcoin as a lottery ticket in and of itself," said John Sedunov, assistant professor of finance for Villanova University in Pennsylvania.

"It does seem that they are starting to pop up more and more in lower income areas."

People in difficult economic situations may view the purchase of bitcoin as a chance to make money and make a lot of money. But bitcoin’s fall in recent months indicates clearly that its rise is far from guaranteed.

But Joe Ciccolo, founder of BitAML, a compliance firm that offers consulting services to digital currency startups, said the bitcoin ATM networks allow consumers to conveniently and instantaneously buy cryptocurrency, typically in smaller denominations.

Consumers typically aren’t spending $7,000 or $8,000 or more upfront on one Bitcoin.

The industry’s average transaction at Bitcoin ATMs is around $200 or $300. Bitcoin of America says its typical purchase is $100 at the ATMs — and claims volume is growing even in light of the fall in bitcoin’s price.

Alice Gorodetsky, director for business development for Chicago-based Bitcoin of America, said people are using the bitcoin ATM to invest, transfer money to others and because they want "complete control of their money."

Bitcoin of America, as is typical in the industry, accepts only cash at the ATMs. (Bitcoin of America also has an online exchange that accepts only wire payments with a minimum of $2,500 currently. It has plans to accept credit cards under $599 in the future but many credit card issuers, such as Bank of America and JPMorgan Chase, do not allow customers to buy bitcoin with their credit cards.)

"By and large, the majority of folks buying cryptocurrency are speculating," Ciccolo said.

Customers pay a fee of around 7 percent or 8 percent to buy the Bitcoin at the ATMs, though the fee can be double digits in some areas.

"From my perspective, much like a traditional ATM, consumers are willing to pay the higher fee for the convenience of the transaction," Ciccolo said.

Ciccolo, who has a background in regulatory compliance, said clientele at bitcoin ATMs tends to be young, male and willing to take risks.

And yes, some may be trying to make quick cash.

"A lot of people do day trading on it," Attisha said. "I see people coming in here every day messing with the machine."

The ATM network has proven to be advantageous, offering lower barriers for regulatory compliance in some states. Many find it easier to set up a bitcoin ATM operation than to sell online, Ciccolo said.

Why does Barr think the Bitcoin ATMs are growing?

"It’s a way of people taking advantage of the hype around Bitcoin to get people to invest in something that doesn’t make a lot of sense for them," he said.

He said bitcoin should not be viewed as a way to build wealth.

"Bitcoin and other currencies as an investment is exceedingly unwise," Barr said. "The value of these cryptocurrencies fluctuates wildly and is not based on any underlying relationship to a real economy. And I don’t think they’re an asset that people should be investing in."

The U.S. Justice Department has reportedly opened a criminal investigation into potential price manipulation of bitcoin — which might include flooding the market with fake orders to drive up the price, according to Bloomberg.

The outstanding price increase in 2017 is being studied to see if there was any fraudulent activity to drive up the price.

The North American Securities Administrators Association — a group of state securities regulators who work to protect investors — said 70 investigations have been opened relating to initial coin offerings and cryptocurrency programs. There are 35 pending and completed enforcement actions nationwide since the beginning of May.

Millennials are viewed as potential targets, as are consumers who are embracing products related to financial technology, commonly known as FinTech.

The anonymous nature of cryptocurrency — a currency without a country — has raised concerns about the potential for fraud and abuse, too.

Easy access to bitcoin ATMs could increase the number of bitcoin-related scams. Some con artists, for example, have requested that consumers send bitcoins via ATMs in phony car sales or fake job opportunities.

And what about the possibility for money laundering?

Kieran Beer, chief analyst for the Association of Certified Anti-Money Laundering Specialists, said real questions need to be addressed when it comes to making sure that bitcoin ATMs are properly regulated.

"Who’s responsible for knowing the customer? Who’s responsible for raising red flags about suspicious activity," Beer said.

While many transactions are legitimate, Beer said, there are concerns about drug dealers and others who might structure buying and selling bitcoin to conceal money made in illegal transactions by using bitcoin ATMs.

Anyone can download a digital wallet, which is essentially a software program, to use for storing bitcoin. And you can create one or more wallet addresses without providing your name or address.

But Ciccolo maintains that it’s a myth to say it’s impossible to track transactions.

Law enforcement officials, including the Internal Revenue Service, are known to be tracing transactions on the blockchain, the digital ledger for bitcoin and other cryptocurrencies.

Ciccolo said Bitcoin ATMs are considered "money transmitters" by the Financial Crimes Enforcement Network, a bureau of the Treasury Department, for regulatory purposes.

Ciccolo noted that the software that comes with the ATMs enables operators to obtain customer information, including a scan of customers’ driver’s licenses. The ATM also is able to enforce transaction controls such as daily limits per person and caps on transaction denominations.

The Financial Crimes Enforcement Network requires cryptocurrency entrepreneurs to have anti-money laundering programs in place.

It is up to operators to develop and implement policies to report suspicious activity.

Some remain skeptical that some bitcoin ATM operators will aggressively report money-laundering activity.

"Are they truly regulating the industry? Or are they just paying lip service to it?" said Douglas Richards, a lawyer at Denver-based Richards Carrington.

The installation of cryptocurrency ATMs in low-income and high-crime neighborhoods, he said, is similar to the strategy used by companies that sold "burner phones" in the same neighborhoods, knowing that such phones were popular with drug dealers, and were quickly replaced, to avoid being tracked by law enforcement.

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