Finance professor Jocelyn Evans first encountered a cryptocurrency ATM on the way to talk about financial education with students last fall.

Evans stopped at a gas station on her way to Sumner Academy in Kansas City, Kansas. She came across the machine with the word “BITCOIN” on the screen. Store staffers weren’t familiar with the machine, which didn’t provide much explanation about how cryptocurrencies work.

“It’s a low-income area with primarily Hispanic, African-American, people who are immigrants,” said Evans, the Henry W. Bloch endowed chair of finance and an associate dean at the University of Missouri-Kansas City. “I just wondered how much people know about cryptocurrency and, with a standalone machine, how much people knew when they made transactions with these machines.”

The ATM that caught Evans’ attention is one of more than 100 cryptocurrency kiosks installed in gas stations, liquor stores, smoke shops and elsewhere across the Kansas City area in the last few years.

The companies running the machines argue they’re providing communities an alternative to traditional financial institutions that have historically given worse deals to poorer neighborhoods and communities of color. 

But critics call the machines a targeted attempt to exploit financially vulnerable people with steep fees for a volatile product that’s difficult to cash out from.

“This is no different than people who target the Black community for payday loans or subprime loans,” Evans said. “They’re targeting people with the least financial knowledge and understanding of how you invest in cryptocurrencies.” 

Crypto ATMs are more prevalent in areas with more Black residents, particularly along Troost Avenue in Kansas City

Source: CoinATMRadar.com, U.S. Census • Graphic by: Dan Mika/The Beacon

Crypto ATMs are more common in neighborhoods with more Hispanic residents, particularly in Kansas City, Kansas

Source: CoinATMRadar.com, U.S. Census • Graphic by: Dan Mika/The Beacon

Cryptocurrency machines tend to be placed in and around neighborhoods with larger numbers of Black and Latino residents, and in areas with lower median household incomes, according to a Beacon analysis comparing ATM locations provided by CoinATMRadar against recent estimates from the U.S. Census.

Research from the Federal Deposit Insurance Corp. shows those populations are more likely to lack bank accounts — or to use nontraditional financial services like payday loans or title loan services that often carry steep fees.

More crypto ATMs are clustered in lower-income areas than in wealthier neighborhoods

Source: CoinATMRadar.com, U.S. Census • Graphic by: Dan Mika/The Beacon

Crypto ATMs promise access to the world of cryptocurrency to financially disadvantaged groups. However, they often charge fees far above industry standards and sometimes offer little explanation of the risks inherent in crypto. All of these ATMs will accept cash to buy crypto, but most aren’t equipped to sell crypto and dispense cash.

Also, cryptocurrency accounts are not insured by the federal government, while the vast majority of bank accounts with less than $250,000 are. The machines also come with pricey surcharges. They often charge more than 10% per transaction and, in one case found by The Beacon, up to 40%.

The promise, rise and crash of crypto

Cryptocurrencies are meant to be a digital form of money. No specific entity like a bank or government controls how much of the currency is available or manages and tracks currency transfers between people. 

Instead, cryptocurrency ledger updates are pushed to a decentralized network of computers that acts as an ever-updating history of every transaction within that currency.

Such an arrangement can appeal to people who don’t trust the financial system, since cryptocurrency wallets in theory don’t require users to identify themselves. Some machines visited by The Beacon required a government ID to put in cash or transact, while others only required a phone number and name without any additional verification.

At least one crypto ATM provider has acknowledged placing machines near unbanked communities. In an interview with a crypto trade publication earlier this year, Bitcoin Depot CEO Brandon Mintz said his company views the unbanked as a primary customer segment. A 2021 survey from the Federal Reserve showed people who used cryptocurrencies for paying others were twice as likely to be unbanked than those who don’t use crypto.

Bitcoin Depot did not respond to multiple requests from The Beacon for comment.

Bitcoin Depot’s projections show how lucrative the crypto ATM business can be. The company, which recently went public, estimates revenues of between $700 million and $730 million this year, with nearly all of that coming from transaction fees.

The first crypto ATM in Kansas City launched in November 2016 at a currency exchange on Broadway Boulevard in midtown. Bitcoin and Ethereum, the two largest cryptocurrencies, had a combined market capitalization of $12 billion at the time. A bitcoin cost around $700, while one ethereum costs $10.

At their peak, around the fall of 2021, Bitcoin and Ethereum combined were valued at the equivalent of nearly $1.8 trillion. Crypto ATMs followed the rise of the coins they sold. The number of ATMs operating in the U.S. rocketed from nearly 4,200 from the start of 2020 to more than 30,000 at the end of 2022.

Only 16 ATMs opened in the Kansas City region during 2018 and 2019. But as cryptocurrencies began to rise in the summer of 2020 amid broader financial speculation, ATM companies added 31 more in the region by the end of the year. Another 50 ATMs were installed in 2021 as pandemic anxieties began to wane.

But economic conditions soured in 2022, as decades-high inflation and fears of global recession created a drag on speculative assets that were flying high during the pandemic.

If the crypto market was an airliner, the end of low interest rates set by the Federal Reserve was like stalling out at 40,000 feet. Just more than a year off its highs, the combined value of Bitcoin and Ethereum sat at about $453 billion in late November 2022 — a decline of nearly 75%.

Yet 40 more ATMs started operating in Kansas City in 2022, while the crypto crash sapped hundreds of billions of dollars out of the ecosystem. 

Globally, the crypto research firm Chainalysis estimates that the entirety of the crypto ATM ecosystem accepted deposits worth nearly $3.8 billion in 2021; that amount fell sharply in 2022 alongside the larger slump in crypto prices.

Steep fees, little disclosure

The cost to buy crypto at stand-alone machines is often hidden or poorly advertised. The average buy rate among ATMs providing information to CoinATMRadar is 16%, and often a flat fee ranging from $1 to $5 is added to the transaction. 

A customer who purchased $20 of bitcoin would pay $3.20 in percentage fees, bringing the total fee to between $4.20 and $8.20 when buying crypto. The dollar equivalent of what remains after those fees is rarely the same day to day due to volatile price swings in crypto compared to government-backed currencies. 

Cashing out is also expensive. Selling fees could take another 7% to 15% out of the withdrawal. 

And those transaction fees can run much higher, and be hidden in plain sight. 

A Beacon reporter visited a store in northeast Kansas City on July 19 to buy $20 worth of bitcoin, which was trading around $30,000 per coin throughout the day. While there was no flat fee, the machine issued the equivalent of $20 of bitcoin at the equivalent of bitcoin priced at approximately $45,000 — a difference of more than 40% over the market price. The price discrepancy was not disclosed.

Transaction fees are far lower on fully online exchanges. The popular crypto exchange Coinbase doesn’t charge fees for deposits and withdrawals of funds in a bank account to and from crypto. SoFi, another online financial brokerage, charges 1.25% per transaction.

The spread of crypto ATMs in the region coincides with a recent increase in unbanked Kansas Citians. An estimated 6.4% of Kansas City area residents were unbanked in 2021, according to FDIC estimates, an increase from 5.8% two years earlier.

FDIC surveys show the most commonly cited reason Americans forgo bank accounts is because they cannot maintain the minimum balance required to avoid monthly fees, which are more likely to be charged to Black and Latino customers.

Discriminatory practices like “redlining,” or denying bank loans and services to residents in communities with significant numbers of racial or ethnic minorities, were banned at the federal level in 1974.

The long-lasting effects of redlining and more modern disadvantages continue to pose a hurdle for low-income people and communities of color to build wealth.

Geoff Jolley, executive director of the community nonprofit Local Initiatives Support Corp. of Greater Kansas City, said access to traditional financial services still lags in communities of color.

The lack of traditional lenders in those areas leaves alternative financial services providers to fill the gap, often with exorbitant fees and interest rates.

“I’m not surprised to see things like cryptocurrency ATMs, payday loans, title companies, that tend to be more exploitative, located in Hispanic or Black communities,” Jolley said.

Crypto ATMs also may not allow customers to convert their crypto into cash. Nearly one in five crypto ATMs in the Kansas City area do not offer cash withdrawals, according to CoinATMRadar data. These factors combined make it fairly easy to put cash into the world of cryptocurrencies, but far more difficult to withdraw if a user relies heavily on ATMs.

Equitable crypto access?

Several crypto ATM companies with locations in Kansas City did not respond to requests for comment for this story.

One company that did respond was RockItCoin. In an emailed statement, CEO Michael Dalesandro said five of the company’s 18 ATMs in Kansas City take and dispense cash. He said machines that do both are more expensive to maintain, so they’re deployed less often.

Dalesandro said RockItCoin’s kiosks are placed in high-traffic areas. He said they do not target specific communities because ATMs aren’t limited to only serving residents that live nearby. Customers search for ATMs and travel to conduct their transactions, he said. 

He said RockItCoin’s ATMs do not target specific communities and argued that crypto ATMs are the opposite of exploitative because they offer people without bank accounts or internet access to cryptocurrencies.

“We are leveling the playing field, not creating barriers to entry or methods of exploitation,” he said.

Dalesandro said RockItCoin’s fees reflect the “premium service” it provides along with the risks involved in buying cryptocurrencies and the costs of maintaining the machines and employing customer support and regulatory compliance staff.

Dalesandro said it would be “unfair” to compare RockItCoin’s higher fees with centralized exchanges like CoinBase and SoFi. Those companies are much larger and have other revenue streams that may allow lower transaction fees to entice new customers, he argued.

“One cannot criticize the mom-and-pop convenience store for charging $4 for a gallon of milk when Wal-Mart charges only $1.69 — they have different costs of production,” Dalesandro said.

Malfunctioning crypto ATMs

A Beacon reporter visited several stores in Kansas City and asked employees how often they saw people using the machines. Some said they have never seen the machines used. Others said they see a small number each week.

Many of the machines were not functioning, and store employees described difficulty reaching ATM providers for service. One worker in a store a few blocks east of Troost Avenue said his machine had been broken for three to four months before a repairman came. When a Beacon reporter tested that machine, the keypad was unresponsive.

Jared Girma, co-owner of Ethio Mart in Shawnee, signed a contract three years ago with the crypto ATM provider Coin Cloud to place a machine in his store. One of the company’s selling points was the possibility of more foot traffic and more sales, he said.

But Girma said crypto customers would walk into his store, use the machine and immediately leave.

“Not many people used it (and) then shopped,” he said.

Coin Cloud filed for Chapter 11 bankruptcy protection in February. Girma said the machine hasn’t been working since. Girma also said he’s only been paid $150 so far this year despite agreeing to a $200 per month rental fee.

Someone came to remove the machine from his store several weeks ago, but Girma refused to let Coin Cloud recover the ATM until his rent agreement is paid in full.

In an emailed response, Brett Axelrod, Coin Cloud’s attorney, said several of Coin Cloud’s ATM lease contracts were not purchased in the bankruptcy process and are effectively terminated. He said the bankruptcy court has allowed Coin Cloud to recover its machines if the party providing the lease space hadn’t filed a dispute.

Regulations and the future of crypto ATMs

A recently introduced U.S. Senate bill would among other things require cryptocurrency ATMs to collect the same level of identity information as banks would for anti-money laundering purposes. Crypto supporters such as the Chamber of Digital Commerce, a crypto industry trade group, are calling that bill an excessive effort to regulate the industry.

The chamber declined to comment on the record about crypto ATM business practices when reached by The Beacon. The DeFi Education Fund, another trade group for crypto-related companies, would not comment on the bill or crypto ATMs in Kansas City.

Evans, the UMKC finance professor, argues crypto ATMs should be banned in lieu of cheaper, more highly regulated online exchanges for people who want to use cryptocurrencies. She also said state governments need to widen access to financial education programs.

Meanwhile, cryptocurrency ATMs remain plugged into stores across Kansas City, charging steep fees and presenting themselves as an alternative to a financial system that doesn’t maintain the same presence in lower-income neighborhoods that it does elsewhere.

LISC Executive Director Jolley lives in northeast Kansas City, an area that’s relatively low-income and home to a relatively high number of immigrants. It has three crypto ATMs and just two bank branches between Independence Avenue and the Missouri River, according to a Beacon analysis of crypto ATM and FDIC location data.

“Financial institutions have not done their part to ensure that there is equitable access to financial opportunity,” Jolley said. “It has created a bit of a vacuum for payday loans (and) cryptocurrency, for other measures with the promise of wealth building being the attraction, but not necessarily the reality.”

This story was supported by the Watchdog Writers Group, a non-profit journalism institute that produces in-depth reporting. It is based at the University of Missouri School of Journalism.

How we reported this story

The Beacon compiled its database of Kansas City-area cryptocurrency ATMs by manually downloading the HTML files for individual locations from CoinATMRadar.com. The site is frequently cited in financial and legal documents to describe the scope of the cryptocurrency ATM market.

From those files, we extracted details such as store location, operator names, installation dates, cryptocurrencies offered and more into a single database and standardized dates, street names and latitude/longitude points. This data can then be overlaid over a street map of the Kansas City area.

We also overlaid bank branch locations in the region using data from the FDIC.

In a separate database, we downloaded data from the U.S. census’ most recent five-year estimates from its American Community Survey. The data include estimates of Black and Latino residents, and people who identify as those races alone or in combination with other races. We also downloaded data on estimated foreign-born populations and median household income. We used “block groups,” or the smallest geographic unit of measurement available for the five-year ACS.

We then narrowed the ATM locations and census data to focus only on Jackson, Clay, Platte, Johnson and Wyandotte counties. The resulting heatmaps for each variable were then merged with the crypto ATM location map to show proximity of kiosks to areas with higher numbers of Black and Latino people or lower median household incomes. The R notebook files used to clean, analyze and map ATM and Census data are available on GitHub.

What are the limitations?

Individual ATMs are not tracked by regulators at the state or federal level. CoinATMRadar solicits location data from ATM providers, so its database may miss some locations that were not submitted to the site.

The census data used for these maps are five-year estimates ranging from 2017 to 2021. The pandemic may have had an impact on certain data sets, such as household incomes decreasing due to job loss, or potentially increasing due to stimulus payments, unemployment benefits and other income from government sources.