There are more than 4,000 Bitcoin ATMs worldwide. Is business good in China?

According to CoinATMRadar, as of February 26, 2019, the number of Bitcoin ATMs in the world has reached 4,373. Despite the global plunge in encrypted digital assets in 2018, the number of Bitcoin ATMs has doubled against the trend. Even if the time span is extended, from 2015 to 2018, the annual compound growth rate of the number of Bitcoin ATMs was 91.82%.

The United States, Canada, Austria, the United Kingdom, Spain and other places have become important deployment points for Bitcoin ATMs around the world, occupying nearly 90% of the global market space.

The data from China is very poor, with 0 in the mainland and 41 in Hong Kong and Taiwan. This inevitably makes people wonder why Chinese players, who have always been known for their keen business sense, have lost interest in the Bitcoin ATM business? You know, Chinese entrepreneurs have almost no rivals in the Bitcoin industry chain, such as mining machines, mining pools, and exchanges.

Is it due to policy reasons, high fees, or data deceiving us? Is Bitcoin ATM a worthwhile business? Where did these gold diggers go after "9.4"? By combing through historical data and communicating with entrepreneurs, we try to find the answers.

The first Bitcoin ATM in mainland China

The first Bitcoin ATM in mainland China appeared on April 15, 2014, at IC Coffee on the 3rd floor of Legend Plaza, No. 635, Bibo Road, Pudong New District, Shanghai (near Zhangjiang Metro Station on Line 2). For this event, Bitcoin China also held a Weibo live broadcast and provided exquisite gifts to those who participated in the offline trial.

According to media reports at the time, the machine could only be operated in one direction, meaning you could use RMB to buy Bitcoin on the machine, but you could not withdraw RMB from the ATM. (For more details, see: https://www.8btc.com/article/46929)

(A Bitcoin ATM in Shanghai, April 2014)

This Bitcoin ATM was manufactured by Iceland's Lamassu and operated by BTCChina, the largest Bitcoin exchange in China at the time. BTCChina CEO Li Qiyuan said at the time that this move would greatly lower the threshold for buying Bitcoin, allowing ordinary people to buy Bitcoin very conveniently, and playing with Bitcoin would no longer be the exclusive domain of speculators.

At that time, the price of one Bitcoin was 2,700 yuan. Bitcoin China was also in its heyday and was planning to deploy more Bitcoin ATMs in the hope of further expanding the market.

Since then, China's bitcoin trading volume has risen rapidly, accounting for 80% of the global market at its peak. But this is not due to bitcoin ATMs. The rapid rise of exchanges such as OKCoin and Huobi, and the monopoly of mining machine manufacturers such as Bitcoin Mainland and Canaan Creative have made China the best in the bitcoin market.

Today, the machine is still there, but it can no longer be used for transactions. Bitcoin China also fell from the top spot in China's Bitcoin exchange and was eventually sold.

Why is the popular Bitcoin ATM not so popular in China?

Although the Bitcoin ATM launched by Bitcoin China caused quite a stir at the time, Bitcoin ATMs have not been deployed on a large scale in mainland China since then. We are even unable to search for other institutions that have launched Bitcoin ATMs besides Bitcoin China.

It is said that in May 2014, OKCoin and Bitcoin Ocean jointly launched a Bitcoin ATM, and Liao Xiang, the founder of Lightning Intelligence, also deployed some Bitcoin ATMs in China. These old stories only exist in the scattered memories of some old people in the circle, and few people mention or ask about them.

Some Bitcoin ATMs were also deployed in Hong Kong, Macau and Taiwan during this period, but they have not yet been promoted on a large scale.

(A Bitcoin ATM at the Sands Casino in Macau, August 2014)

It is understood that in June 2014, the Sands Casino in Macau introduced a two-way Bitcoin ATM. Since the machine did not have KYC and anti-money laundering functions including fingerprint authentication, ID card reader, SMS confirmation and photo taking enabled at the time, customers were able to withdraw cash anonymously, increasing the risk of money laundering.

However, there have been no public reports about Bitcoin ATMs in Macau since then, and CoinATMRadar no longer marks them.

Hong Kong introduced its first Bitcoin ATM on March 15, 2014. Currently, there are 32 Bitcoin ATMs in Hong Kong, ranking first in the country.

There are 9 Bitcoin ATMs in Taiwan. According to local personnel, these 9 Bitcoin ATMs are basically in Taipei, and most of them are broken. The manufacturers of the ATMs are not traditional ATM manufacturers, but "outsiders" like the Japanese Gachapon machine company. In terms of supervision, the attitude of the Taiwanese government towards ATMs is similar to that towards Bitcoin. It does not prohibit or support them, but there may be further actions after the 2020 election.

Many people subconsciously attribute the failure of Bitcoin ATMs in China to policy factors.

However, this argument is obviously untenable. In December 2013, the People's Bank of China and five other ministries issued the "Notice on Preventing Bitcoin Risks", defining Bitcoin as a specific virtual commodity that does not have the same legal status as currency and cannot and should not be circulated and used as currency in the market.

Four months later, Bitcoin China launched the first Bitcoin ATM in mainland China amid skepticism.

On September 4, 2017, the People’s Bank of China, the China Banking Regulatory Commission, the China Securities Regulatory Commission and seven other ministries and commissions jointly issued the “Notice on Preventing Risks in Token Issuance and Financing.” Soon after, all exchanges registered in China moved overseas, and Bitcoin China also took the initiative to stop the maintenance of Bitcoin ATMs.

However, before the “9.4” policy was introduced, the number of Bitcoin ATMs in China had always been small, and Bitcoin China’s plan to deploy more Bitcoin ATMs in 2014 was never followed up. Therefore, the impact of the policy does not constitute the reason for the poor promotion of Bitcoin ATMs in the Chinese market.

So, is it the high transaction fees that prevent the promotion of Bitcoin ATMs in China?

According to data updated by CoinATMRadar on December 17, 2016, the purchase and sale fees of Bitcoin ATMs around the world are 8.4% and 5.4% respectively. CoinATMRadar no longer publishes the latest data, but from some media reports, we can find that the transaction fee rate of some Bitcoin ATMs is as high as 20%, which is obviously not a small amount.

However, Evan, media director of the Blockchain Shenzhen Research and Development Center, told Babbitt that the handling fee rate of Bitcoin ATMs is not fixed, and merchants who purchase Bitcoin ATMs can set it by themselves. The default transaction fee rate of the Bitcoin ATMs they produce is 0.5% to 0.8% when they leave the factory.

"The amount of the handling fee has a lot to do with the purpose of the merchant buying the machine and the location of the machine." Evan said that merchants buy Bitcoin ATM machines for two purposes: publicity and earning handling fees. Usually, the project party's appeal is to bring brand exposure opportunities to the project and provide convenience for investors who buy the project party's cryptocurrency, so they will not set too high a handling fee. Casinos and other places buy Bitcoin ATM machines for the purpose of making money, so the handling fees are generally higher.

Perhaps the reason why Bitcoin ATMs cannot be promoted in China is due to people’s usage habits and the popularity of mobile payments in the country today.

For example, in Taiwan, cryptocurrency users still prefer to use the OTC and legal currency channels of exchanges, and basically do not use Bitcoin ATMs for transactions.

Liao Xiang, an early blockchain entrepreneur in China, launched a Bitcoin ATM in 2015. He initially invested in machines in Hong Kong, Beijing, Shanghai, and Shenzhen, but they were all removed because no one used them.

“ATMs are suitable for small-amount, high-frequency cash usage, and there is almost no consumption habit of using digital currency in Asia, with more people using cash and mobile payments.”

Chen Guoliang of Hayek ATM believes that China has always been cautious about digital currency, and that mobile payment is well developed in China, so the demand for paper currency is low and the market is relatively limited. In addition, digital currency has experienced ups and downs, and the market is in a state of panic, with more people waiting and watching.

Chinese entrepreneurs have not disappeared

Although it cannot be promoted in China, Liao Xiang's Bitcoin ATM has opened up a market in the United States and Europe.

In Liao Xiang's opinion, regions with very strict financial supervision are more likely to have a demand for Bitcoin ATMs.

“All Bitcoin ATM machines charge very high fees, 10-15% handling fee. People who are willing to pay the money do so to protect their privacy. Otherwise, they can just go to the exchange to do KYC.”

The Bitcoin ATM developed by the Blockchain Shenzhen Research and Development Center is also sold overseas. "Currently, the machines we deploy and operate ourselves only account for 1.3% of the number marked by CoinATMRadar, but there are nearly 1,000 machines customized for us," Evan told Babbitt.

This number accounts for about 25% of the world's Bitcoin ATMs.

Compared to mining machines and exchanges, which are businesses that make money easily when the market is good, Bitcoin ATMs are more about earning hard-earned money.

Based on the sales price of a Bitcoin ATM machine of US$10,000, the gross profit margin is only about 25%. "Hardware costs are very cheap in Shenzhen, mainly in R&D costs. There are also hardware card wallets, which are all expenses."

Sometimes the transportation cost of the machine is also staggering, even comparable to the selling price of the machine. "We shipped one to Los Angeles before, and it cost almost $10,000," Evan told Babbitt.

In fact, the use of Bitcoin ATMs is also very cumbersome. Luo Taizhou, co-founder of Yiji Capital, once experienced a local Bitcoin ATM in Serbia. "Transactions on Bitcoin ATMs require KYC, which can be done on the website or on the machine. It takes about 30 minutes to confirm by phone. Then you can withdraw cash in Euros. The exchange rate is about 5% lower than that of domestic OTC."

In Luo Taizhou's view, Bitcoin ATM is currently just a novelty to satisfy the curiosity of some pioneering users who hold Bitcoin.

The number of Bitcoin ATMs has been growing steadily every year around the world, and it seems to have the potential to grow through both bull and bear markets, and it seems to be a good business.

MarketsandMarkets predicted in a 2018 report that the global cryptocurrency ATM market is expected to reach $144.5 million by 2023. At that time, the number of Bitcoin ATMs worldwide was 3,650, with a market value of $16.3 million.

Faced with this rapidly growing market, some latecomer entrepreneurs in China are making low-key plans.

However, Liao Xiang, who worked on Bitcoin ATMs in the early days, believes that Bitcoin ATMs are not a big business. To date, there are still nearly 100 Bitcoin ATMs in his warehouse. "The ATM market will grow slowly. There will always be people who need to protect their identity and privacy information. This is a niche market and it is difficult to cover the world."