This ATM bitcoin company is going public: 2 green flags and 1 red flag

In a story so tailored to the 2021 bull market pinnacle that you might think it was spawned by a bot using some of that year’s most popular investment themes, a Bitcoin (BTC -0.16%) The ATM operator is going public through SPAC. GSR II Meteora Acquisition Corp. (GSRM -0.05%) has reached an agreement to accept Bitcoin deposit public, which values ​​the nation’s largest Bitcoin ATM operator at around $ 885 million.

From the height of the SPAC boom in early 2021 and from the height of cryptocurrencies to the end of 2021, both types of assets have fallen in difficult times as rising interest rates, soaring inflation and an uncertain economy they reduced investors’ appetite for risky assets. However, a lively merger like this is still bound to attract a lot of investor attention. So is there more sizzle than steak or is there something substantial here? Here are two green flags and a red flag for Bitcoin Depot.

Someone who puts a $ 100 bill into a Bitcoin ATM kiosk.

Image source: Getty Images.

Bitcoin Depot is profitable

Founded in 2016, which is ancient in terms of cryptocurrencies, Bitcoin Depot claims to be the largest Bitcoin ATM provider in North America, with around 7,000 kiosks in the United States and Canada. Its Bitcoin ATMs can be found in places like Circle K, a popular convenience store across much of North America. Bitcoin Depot estimates that it holds around 20% of the Bitcoin ATM market share in the United States and around 8% in Canada.

Unlike many companies that went public via SPAC and saw their shares fall precariously when some of the foam left the market, Bitcoin Depot is profitable, at least on a non-GAAP (adjusted) basis. In 2020, the company earned $ 21 million in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and raised this number to $ 29 million in 2021. Bitcoin Depot makes money by charging ATM fees for these transactions.

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Bitcoin Depot is running during a bear market in cryptocurrencies

Bitcoin itself is down 53% year to date, and many other cryptocurrencies are down even more. This caused high-profile cryptographic actions such as Coinbase (NASDAQ: COIN) sell this year for an amount of 78% as the trading volume decreased. However, Bitcoin Depot has surprisingly bucked the trend here and its business not only survives but thrives during the crypto winter. During the second quarter of 2022, Bitcoin Depot posted record revenue and EBITDA. CEO Brandon Mintz attributes the record results during a bear market for cryptocurrencies to the growing number of real-world use cases for cryptocurrencies. In August, Bitcoin Depot reported that it had achieved $ 623 million in sales over the past 12 months, up 51% year-over-year. The company also increased EBITDA from $ 14 million during the first half of 2021 to $ 22 million during the first half of 2022.

Bitcoin Depot’s transaction volume appears to be unrelated to Bitcoin’s price. For example, while cryptocurrency prices plummeted from the first quarter of 2022 to the second quarter, Bitcoin Depot has seen the volume of transactions rise to all-time highs.

The main concern: regulatory control

There’s a lot to be excited about with Bitcoin Depot, thanks to the company’s profitability and momentum. However, there is also some reason for caution. The Bitcoin ATM industry could be a target for regulators, as skeptics say crypto ATMs are often used for money laundering. The FBI has warned consumers that Bitcoin ATMs are often used by bad guys to facilitate scams. Scammers use ATMs to give an encrypted twist to a variant of a centuries-old scam in which they contact unsuspecting victims over the phone and instruct them to deposit money in a kiosk and then trick them or force them to send Bitcoin to their wallet via a QR code, often under the guise of helping a relative who is in trouble and needs money. However, CEO Brandon Mintz says the company uses extensive compliance measures in its kiosks, including Know Your Customer (KYC) and Anti Money Laundering (AML) programs. The company reports that it uses procedures such as an identification request, a wallet check, OFAC screening, and more before facilitating transactions.

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While the use is legitimate, some critics say crypto ATMs can benefit economically disadvantaged consumers (who may turn to them because they don’t have access to online bank accounts) with high fees. That said, many online cryptocurrency brokers also target consumers with high fees, so I don’t think Bitcoin Depot should be targeted in this area.

An interesting risk-return profile

When I first heard of a Bitcoin ATM operator wanting to go public in 2022, I was a little skeptical and thought they’d lost the boat on what would be a big payday in 2021. But I have to. giving credit where credit is due, and Bitcoin Depot seems like a more attractive investment opportunity than I initially thought. The company is profitable on a non-GAAP basis and is increasing revenue and profits even though the larger crypto space is in a bear market, so it deserves credit for that. Transaction volume remained strong even as Bitcoin’s price plummeted, which shows that this business may be more resilient than one might think at first glance. Additionally, the company has many growth opportunities in sight, such as its BD Checkout option, which allows customers to purchase Bitcoin at retail locations without using an ATM. It also has growth opportunities in the form of international expansion and expansion in states like New York, where it has not yet been approved to operate but could prove to be profitable.

There is still risk here, especially given the possibility that the industry and business may face ongoing regulatory scrutiny and the fact that this is an early stage investment. All in all, I am more bullish on Bitcoin Depot than I expected before learning more about the company. For risk-tolerant investors, I think it offers an intriguing risk-return profile that tends towards the positive.

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Michael Byrne

has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin and Coinbase Global, Inc. The Motley Fool has a disclosure policy.

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