In a story so tailored to the bull market peak of 2021 you’d think it was generated by a bot using some of that year’s most popular investing themes, a Bitcoin (CRYPTO: BTC) The ATM operator goes public via SPAC. GSR II Meteora Acquisition Corp. (NASDAQ: GSRM) reached an agreement to take Bitcoin deposit public, which values the nation’s largest Bitcoin ATM operator at around $885 million.
Since the peak of the SPAC boom in early 2021 and the peak of crypto in late 2021, both types of assets have faced tough times as rising interest rates, soaring l inflation and an uncertain economy have diminished investors’ appetite for risky assets. However, a fashionable merger like this should always attract investors’ attention. So is there more sizzle than steak, or is there something substantial here? Here are two green flags and one red flag for Bitcoin Depot.
Bitcoin Depot is profitable
Founded in 2016, which is old in crypto terms, Bitcoin Depot claims to be the largest Bitcoin ATM provider in North America, with approximately 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 has 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 as some of the foam left the market, Bitcoin Depot is profitable, at least on a non-GAAP (adjusted) basis. In 2020, the company made adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $21 million and increased that number to $29 million in 2021. Bitcoin Depot makes money by charging fees ATM for these transactions.
Bitcoin Depot Happens During a Crypto Bear Market
Bitcoin itself is down 53% year-to-date, and many other cryptocurrencies are down even further. This has resulted in shares of prominent crypto-related stocks such as Coinbase (NASDAQ: CURRENCY) sell this year by 78% while the volume of transactions has decreased. However, Bitcoin Depot has surprisingly bucked the trend here, and its business is not only surviving but thriving through the crypto winter. During the second quarter of 2022, Bitcoin Depot posted record revenue and EBITDA. CEO Brandon Mintz attributes the record results of a crypto bear market to the growing number of real-world use cases for crypto. In August, Bitcoin Depot announced that over the past 12 months it had made $623 million in revenue, a 51% year-over-year gain. The company also increased its EBITDA from $14 million in the first half of 2021 to $22 million in the first half of 2022.
Bitcoin Depot’s trading volume appears to be uncorrelated with the price of Bitcoin. For example, as crypto prices fell from Q1 2022 to Q2, Bitcoin Depot saw trading volume hit an all-time high.
The main concern: regulatory control
There’s plenty to be excited about Bitcoin Depot, thanks to the company’s profitability and momentum. However, there are also reasons for caution. The Bitcoin ATM industry could be a target for regulators, as skeptics claim that crypto ATMs are often used for money laundering. The FBI has warned consumers that Bitcoin ATMs are often used by bad actors to facilitate scams. Scammers are using ATMs to put a cryptographic spin on a variation of an age-old scam where they contact unsuspecting victims by phone and ask them to deposit money at a kiosk and then trick or trick them. forced to send Bitcoins to their wallet via a QR code, often under the pretext of helping a loved one in difficulty and who needs money. However, CEO Brandon Mintz says the company uses extensive compliance measures at its kiosks, including Know Your Customer (KYC) and Anti Money Laundering (AML) programs. The company says it uses procedures such as ID request, wallet verification, OFAC screening, etc., before facilitating transactions.
Even if the use is legitimate, some critics claim that crypto ATMs can take advantage of economically disadvantaged consumers (who may turn to them because they don’t have access to online banking accounts) with high fees. That said, many online crypto brokers are also hitting consumers with high fees, so I don’t think Bitcoin Depot should be singled out as a target in this area.
An attractive risk-return profile
When I first heard of a Bitcoin ATM operator looking to go public in 2022 I was somewhat skeptical and thought they had missed the boat on what would have been a big payday in 2021. But I have to give credit where credit is due, and Bitcoin Depot looks like a more attractive investment opportunity than I initially thought. The company is profitable on a non-GAAP basis and growing revenue and profit even though the broader crypto space is in a bear market, so it deserves credit for that. Trading volume has remained high even as the price of Bitcoin has plunged, showing that this activity may be more resilient than first thought. Additionally, the company has many future growth opportunities, such as its BD Checkout option, which allows customers to purchase Bitcoins at retail outlets without using an ATM. It also has growth opportunities in the form of international expansion and expansion into states such as New York, where it has not yet been licensed to operate but could prove lucrative.
There is always a risk here, especially given the possibility that the industry and company could be subject to continued regulatory scrutiny and the fact that this is an early stage investment. . All in all, I’m more bullish on Bitcoin Depot than I expected before I learned more about the company. For risk-tolerant investors, I think it offers an intriguing risk-reward profile that leans towards the positive.
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Michael Byrne has positions in Bitcoin. The Motley Fool holds positions and endorses Bitcoin and Coinbase Global, Inc. The Motley Fool has a Disclosure Policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.