FinTech Flash: So You Want to Put a Bitcoin ATM in a Coffee Shop?

by Goodwin

This writer received three cold emails in two weeks asking for legal help around operating a Bitcoin ATM (BTM).[1] Each groundbreaker asked: “What are the legal requirements for an operator putting a BTM in, say, a coffee shop?” Lawyers and businessmen and women work on the assumption that for every one person who asks you a question, 100 others also want to ask you the same question or are asking someone else. Ergo, this Flash.


So, what’s a BTM? Well, it has the body of a regular ATM, but the motor of a Bitcoin trader.

BTMs allow you to purchase Bitcoin (BTC) and other virtual currencies. Some BTMs offer bi-directional functionality enabling both the purchase of BTC as well as the redemption of BTC for cash.

Behind the scenes, most BTMs facilitate exchanges of BTC for money. They act as an intermediary between a buyer and seller, typically connecting through an exchange site. On the buy side, after the user signs on, goes through KYC[2], and designates the wallet where he or she would like the BTC sent, the user inserts cash to buy BTC.  The cash value is transmitted by the BTM operator to an exchange to settle the virtual currency trade with a seller. After settling, the purchased BTC is sent to the user’s wallet. The sell side of bi-directional ATMs operates basically the same, but in reverse.

In another model, BTMs are built to execute transactions directly between the user and the BTM operator. The user buys BTC from the operator – who holds a reserve of the virtual currency in its own digital wallet – with no third parties involved.[3]

Top of the Legal Requirements Punch List

Whether or not a BTM operator is a regulated money services business under federal law and a money transmitter under state law occupies the top spots on the BTM operator’s legal punch list.

FinCEN Money Services Business

Under the federal Bank Secrecy Act and its implementing FinCEN regulations, a money services business is defined to include a money transmitter, which is a person who “provides money transmission services . . . or [is] engaged in the transfer of funds.”[4] The term “money transmission services” means “the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.”[5] Stated more plainly – you’re a money services business if you accept currency or value from one person and transmit currency or value to another person or location.[6] “Currency” is understood to represent coin and paper money of the United States or of any other country that is designated as legal tender, but “value” would encompass virtual currency.

BTM operators who act as an intermediary between buyers and sellers must register with FinCEN as a money services business. A BTM operator engages in money transmission services if it accepts currency from its users and transmits currency or value to another person or location (e.g., the exchange) to settle the trade. Generally, BTM operators register with FinCEN.

Registering with FinCEN is not difficult, but the related compliance obligations take some upfront and ongoing work. Registration can be completed online through FinCEN’s website. Registration is straight forward and doesn’t have an approval process – it’s automatic. Registrants have a number of compliance obligations, though. The central one is adopting a written anti-money-laundering (AML) program, which must include implementing a variety of KYC policies and procedures. Other obligations include appointing an AML officer, putting in place annual AML training, making suspicious activity and currency transaction reports, keeping transaction records, and undergoing periodic, independent audits.[7]

State Money Transmitter

Virtually every state has a money transmitter law which is an analog to the federal Bank Secrecy Act/FinCEN regulations for money services businesses. These state laws include licensing requirements. The licensing trigger language varies from state to state. Many states follow FinCEN’s formulation – accepting currency or value from one person and transmitting it to another person – but many do not. Some states only cover fiat currencies, while others both fiat and virtual currency. At least one state only covers transmitting money internationally.[8] Because state money transmitter laws are a hodge-podge in terms of applicability and compliance requirements, a determination as to whether a BTM operator needs a money transmitter license in a particular state requires legal analysis specific to each state in which the operator operates a BTM. A BTM operator that has BTMs in a number of states could be licensed in some states, but not others.

Obtaining a state money transmitter license is not as easy as registering with FinCEN. A detailed application must be completed, financial statements provided, surety bond obtained, and fingerprints for officers, directors and individual 10% owners submitted and background investigations on them conducted.  It generally takes three to six months for an application to be approved, but can be a year or more in a few states. There can be ongoing obligations, including setting aside collateral equal to the value of transactions handled, reporting and record keeping. Finally, licensees are subject to periodic examination by the licensing authority.

What Else?

A BTM operator’s legal punch list will include other laws, such as the Gramm-Leach-Bliley Act’s privacy and information security requirements, the CFPB’s UDAAP enforcement authority[9], and applicable laws of the state where the BTM is located.


[1] For ease of reference we call these machines BTMs, but they generally serve other virtual currencies, including Ether and Litecoin.

[2] KYC is an acronym for Know Your Customer, which refers to the operational process of identifying and verifying the identity of customers.

[3] BTMs configured to conduct one-sided transactions in this way may be outside the scope of some state money transmitter laws and their licensing requirements. The Illinois Department of Financial and Professional Regulation has taken this position. See Digital Currency Regulatory Guidance, Illinois Department of Financial and Professional Regulation, pg. 6 (June 13, 2017). There may also be a similar argument in analyzing the applicability of the federal money services business requirements discussed below, but this further analysis is outside the scope of this Flash. You will see in our discussion that the federal law on this subject is written broadly and with all the legal uncertainty around tokens and coins at the moment, it would be prudent to proceed conservatively in this area at this time.

[4] 31 C.F.R. § 1010.100(ff)(5)(i)(A), (B).

[5] 31 C.F.R. § 1010.100(ff)(5)(i)(A).

[6] We note that the regulation indicates that a money services business also includes a “person engaged in the transfer of funds.”  31 C.F.R. § 1010.100(ff)(5)(i)(B). The supplementary material accompanying the issuance of the regulation states that “[t]his phrase was removed from the definition…The final rule, however, includes this phrase to minimize any possible confusion regarding whether there has been a change to the scope of the definition of ‘money transmitter.’ The scope of the definition of ‘money transmitter’ in this final rule is the same as that of the prior regulatory definition.”  76 FR 43585, 43593 (July 21, 2011). This commentary suggests that this additional prong of the definition is not intended to expand the scope of who is a money services business, but rather to avoid confusion. “Engaging in the transfer of funds” on its face is susceptible to broad interpretation, but this commentary is helpful in limiting its reach.

[7] This FinCEN webpage contains links to money services business obligations:

[8] Mass. Gen. Laws ch. 169, § 1.

[9] The Consumer Financial Protection Bureau has the authority to take action against persons providing consumer financial products or services in an unfair, deceptive or abusive manner. The CFPB published a consumer advisory on virtual currencies in August 2014. In this advisory, the CFPB warns consumers of “high transaction fees” charged by BTMs. See CFPB Consumer Advisory:  Risks to Consumers Posed by Virtual Currencies, pg. 3 (August 2014). BTM manufacturers should be mindful of the CFPB’s UDAP authority and should configure their machines in a way that gives prominent and effective disclosure of transaction costs.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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