Bitcoin ATMs are becoming increasingly common, popping up in gas stations, convenience stores, smoke shops and grocery stores. Five years ago, there were roughly 1,000 cryptocurrency ATMs in Texas. Today, there are nearly 4,000. The machines offer a legitimate and easy way to buy cryptocurrency, but with convenience comes risk.
The FBI warns that scammers are increasingly using these machines, leading to significant losses for victims. From 2020 to 2023, consumer losses in Bitcoin ATM scams skyrocketed tenfold to $114 million, according to the Federal Trade Commission. This figure only includes reported losses, suggesting the actual amount could be higher.
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Joseph Buentello, 80, was one such victim. He received a frantic call claiming his son had been arrested and needed $5,000 in legal fees.
Buentello said the caller instructed him to withdraw the money from his bank and deposit it into a Bitcoin ATM at his local grocery store. Buentello followed the instructions, only to realize later that he had been scammed. The money was instantly converted to Bitcoin and sent to a cryptocurrency wallet, making it unrecoverable.
“I was scared,” said Buentello, who previously had never even heard of a Bitcoin ATM. “I hit the panic button and I let my panic take control of my good judgment.”
In a statement about the Buentello case, Bitcoin ATM operator Coinme said, “Our customer service team is dedicated to supporting scam victims, but in cases like this, transactions are instantly sent outside of Coinme’s platform, making the funds unrecoverable.” Tom Thumb, the grocery store hosting the Bitcoin ATM, said the ATMs are private, self-service transactions. Both Tom Thumb and Coinme noted multiple fraud warning screens on the kiosk.
Limitations around law enforcement
Law enforcement faces challenges in addressing these crimes. In one case, the McLennan County Sheriff’s Office seized cash directly from a Bitcoin ATM and returned it to an 83-year-old scam victim. However, the Bitcoin ATM operator sued the sheriff’s office, claiming the seizure was unlawful.
The lawsuit was eventually dropped and the woman was allowed to keep the money, but only after the county admitted the funds were seized in error and legally belonged to the Bitcoin ATM operator.
Despite the lawsuit, McLennan County Sheriff Parnell McNamara said he doesn’t regret how his department handled the case.
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“We got the lady’s money back. It should have gone back to her. Had we not done it the way we did, she would not have gotten it back,” he said
Bitcoin ATM operators claim they take extensive measures to protect users from fraud, including displaying as many as six fraud warning screens before any transaction. However, former industry insiders argue these warnings are insufficient.
Anthony Zervos, a former fraud analyst for DigitalMint, said, that to curb fraud, his company required most first-time Bitcoin ATM customers to speak to a representative before making a transaction.
Zervos said most customers he spoke with were unknowingly scam victims, but by speaking with them first the company said it prevented many scam victims from losing money. After failing to get the industry to crack down on fraud, DigitalMint decided to exit the ATM business.
“Something needs to be done because we have heard some horror stories,” Zervos told the CBS News Texas I-Team.
Potential solutions
In recent years, a handful of states including California, Vermont and Minnesota passed laws regulating Bitcoin ATMs. However, most of the country, including Texas, has no regulations.
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U.S. Sen. Dick Durbin of Illinois has taken notice of the issue. Last fall, he wrote to the ten biggest Bitcoin ATM operators, asking about their scam prevention efforts. He found their responses “not reassuring”. Durbin plans to introduce federal legislation that would include a cap on the amount one can deposit into a Bitcoin ATM and require 72-hour holds on all transactions for new users.
“It’s time for the cryptocurrency industry to step up and come up with a good standard to protect seniors from this type of exploitation,” Durbin told the I-Team.
Several Bitcoin ATM operators said they look forward to working with lawmakers to establish consumer protection regulations. However, one state lobbyist for the cryptocurrency industry, Texas Blockchain Council, mentioned they would support policies to eliminate bad actors, but that “banning crypto ATMs altogether is not a very ‘Texan’ thing to do.”
