2024 is the year German authorities woke up and chose violence; it’s been a bit of a brat summer in Bavaria, starting off with the massive market dump of 60,000 Bitcoin in July, netting them a cool €2.3 billion and change.
When chatter globally increases about the benefits of nations states setting up strategic Bitcoin reserves, Germany, with seed funding from a seizure, decided they’re better off with a fat finger sell order and realising “profits”.
At least they didn’t have to pay taxes. Taxes, like debt, are only money we owe to ourselves, right? Where’s the Krugman squad at?
After driving down the Bitcoin price to a low of around $55 000 US, the market absorbed the sucker punch, and we moved back up to over $60 000, ready to take on the second round of dumping from Mt Gox creditors.
German authorities are still working on their Bitcoin bashing, not content with seizing and selling Bitcoin, and they also want its citizens to refrain from holding or trading any Bitcoin they can’t track. Yes, you will own something, but we need to see what you own, and you’ll be happy.
In the latest crackdown operation across Germany, financial regulators and law enforcement agencies have confiscated nearly €250,000 in cash and shut down 13 cryptocurrency ATMs operating without proper authorisation.
The German Federal Financial Supervisory Authority (BaFin) announced the results of this coordinated effort due to concerns over money laundering risks associated with unregulated cryptocurrency exchanges.
This crackdown is part of a broader global trend where governments tighten their grip on Bitcoin transactions to prevent illicit activities and ensure financial stability.
If you want privacy, you can’t have it because you’re likely funding North Korea.
What are Bitcoin ATMs?
Bitcoin ATMs are machines that allow users to buy or sell Bitcoin and sometimes other cryptocurrencies using cash or credit/debit cards. They function similarly to traditional ATMs, but there is one caveat: the ATM needs to interact with your local bank account tied to your government-issued ID, which is a problem for governments.
These ATMs come in different flavours, but the idea is for users who want Bitcoin to deposit cash into the machine, and if it all checks out, the ATM provider transfers the Bitcoin. If someone comes along later and wants to do the inverse, they send Bitcoin to the ATM Bitcoin address, and the machine spits out bills.
Both sides of the transaction net the ATM provider a fee, and everyone is happy.
ATMs solve the problem of having to deal with moving cash directly into Bitcoin, where the alternative is meeting a stranger in a park or mailing someone cash. Trust me; you don’t want to have to meet strangers to do BTC to cash deals; it’s weird; they think they’re your friend, and you have to make conversation with them, maybe take them for ice cream at the park you met at, and now you’re just standing there, two grown ass men licking ice cream cones.
Don’t do it to yourself, just use the damn ATM.
Since many of us are pretty socially awkward these days and can’t talk to strangers without soiling ourselves, these ATMs have surged in popularity due to their ease of use and anonymity. However, this anonymity is a double-edged sword which has drawn the attention of regulatory authorities worldwide, including those in Germany.
Apparently, they are banks for criminals; if you ever see someone standing at a kiosk with a balaclava on and a bunch of Euros, trying to force it into a machine or get it out of one while scanning QR codes, you should call your local police, it’s criminal activity.
The Rise of Financial Crime
One of the primary reasons German authorities are cracking down on Bitcoin ATMs is the growing concern about financial crime. Bitcoin, while offering numerous benefits such as decentralisation and lower transaction costs, also pose challenges for law enforcement. The pseudonymous nature of Bitcoin transactions conducted outside a KYC avenue makes it difficult to trace the flow of money and identify those involved in illegal activities.
Bitcoin ATMs have become a favoured tool for individuals seeking to launder money or engage in other illicit transactions. The ease of converting cash into cryptocurrency at these ATMs can facilitate money laundering schemes, enabling criminals to obfuscate the origins of their funds.
This misuse of Bitcoin ATMs has prompted German regulators like their counterparts in the UK decided to take action to curb such practices and enhance the integrity of their financial system.
I get the argument, but let’s be realistic here: how much capital is sitting in and turning over in any Bitcoin ATM? I venture to say not much. These ATMs usually have a cap on them, so it’s only focused on catering to someone who has a few Bratwurst worth of Euros and wants to swap it over into Bitcoin, or vice versa.
If I were a criminal enterprise, I hardly think the most efficient way to launder my funds would be to drive around to different Bitcoin ATMs to try and move my cash into Bitcoin. It’s just too inefficient to provide any scale, and criminals are lazy; that’s why they’re criminals, so it’s more likely they’re buying KYC accounts on those precious regulated exchanges and swapping funds at scale via markets that can have a meaningful amount of funds.
Regulatory Framework in Germany
Germany has long been known for its proactive approach to cryptocurrency regulation. The country’s financial regulatory authority, BaFin (Federal Financial Supervisory Authority), has been at the forefront of implementing measures to ensure the security and legality of cryptocurrency operations.
The German regulatory framework for cryptocurrencies is one of the most stringent in the world, with requirements for Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures.
In 2020, BaFin classified cryptocurrencies as units of account and subject to financial regulations. This classification meant that businesses dealing with cryptocurrencies, including operators of Bitcoin ATMs, needed to comply with AML and KYC regulations. Failure to adhere to these regulations can result in severe penalties and operational restrictions.
These new rules have forced anonymous Bitcoin ATM operators who previously deactivated their machines rather than comply and turn into a data mining operation, putting their users’ privacy at risk all because they wanted to swap Bitcoin for a week’s worth of groceries.
Key Reasons Behind the Crackdown
Enhanced Anti-Money Laundering Measures:
Germany’s crackdown on Bitcoin ATMs is largely driven by a need to enforce stricter anti-money laundering measures. Authorities are focusing on ensuring that operators of Bitcoin ATMs adhere to AML regulations, including conducting thorough customer identity verifications.
This is aimed at preventing the use of these ATMs for money laundering and other financial crimes, and because everyone should be considered guilty until proven innocent, you’ll need to show your papers, please.
Mitigating Financial Risks:
The volatile nature of cryptocurrencies presents financial risks for investors and consumers. Germany’s regulatory actions are partly aimed at mitigating these risks by ensuring that Bitcoin ATMs are operated by legitimate businesses that adhere to financial regulations. This helps to protect consumers from potential fraud and ensures that the cryptocurrency market operates within a controlled framework.
Apparently, the market isn’t able to regulate itself; the poor dumb capitalist needs to be told what to do, and a store or premises that would host a Bitcoin ATM would willingly leave it up to scam people and harm their own reputation along with the ability to conduct commerce, despite it being their reason for existing in the first place.
Addressing Tax Evasion Concerns:
Cryptocurrencies have been associated with tax evasion due to their pseudonymous nature. By tightening regulations around Bitcoin ATMs, German authorities seek to address concerns about tax evasion and ensure that cryptocurrency transactions are properly reported and taxed.
This move is part of a broader effort to integrate cryptocurrencies into the existing tax framework and prevent tax evasion.
Now, we’re starting to talk a lot more sense here: forcing people to use KYC services makes it easier to consolidate their tax bills and push them into higher tax brackets over time.
We can’t allow people to reduce their tax burdens now, can we? How would we build the roads?
Implications for Users and Businesses
The crackdown on Bitcoin ATMs has several implications for both users and businesses in Germany:
Increased Verification Requirements:
Users of Bitcoin ATMs may face increased verification requirements, including providing personal identification and complying with KYC procedures. While this enhances security and regulatory compliance, it may also add a layer of complexity to the process of buying or selling cryptocurrencies.
While a KYC ATM will still work, it sort of defeats the purpose or appeal of using one; if you’re not getting the privacy benefits, why not just cash out with an exchange and create those taxable events there, or P2P instead?
Operational Challenges for ATM Operators:
Businesses operating Bitcoin ATMs will need to invest in compliance infrastructure and systems to meet regulatory requirements. This includes implementing robust AML and KYC procedures, which can be costly and time-consuming, meaning ATMs will have to charge higher fees, again defeating the purpose of using them if you can get cheaper premiums on another KYC platform.
Potential Impact on Bitcoin Adoption:
Stricter regulations may impact the adoption of cryptocurrencies in Germany. While regulatory measures are intended to protect consumers and ensure market integrity, they may also deter some individuals from using Bitcoin ATMs or engaging in cryptocurrency transactions.
The Broader Context
Germany’s crackdown on Bitcoin ATMs is part of a global trend where governments increasingly focus on regulating any escape hatch. Despite the vast majority of transactions happening inside regulated banks and businesses, governments aren’t content with monitoring most of the market and the pipeline between cash and Bitcoin, while a tiny fraction of the market has to be squeezed, or it could be a possible escape hatch.
You heard what Christine Lagarde said, right?
In the European Union, for example, the upcoming Markets in Crypto-Assets (MiCA) regulation aims to create a comprehensive framework for cryptocurrency markets, including provisions for AML and KYC compliance and travel rules.
Pushing P2P
While this crackdown does suck for those businesses who now either need to comply or close down shop and for the customers who enjoyed the service, it’s not the end of the world and Bitcoin, like life…finds a way.
If there is demand for non-KYC Bitcoin within Germany, it will have to transition to P2P order books, hopefully seeing a spike in liquidity. Services like Peach Bitcoin, RoboSats, and Bisq offer formal trading platforms, while there are telegram bots and groups where local trading can be coordinated.
Another option is POS systems instead of something obvious like a Bitcoin exchange. If the shop owner of a cash-heavy business wants to make an additional premium on that cash, they can do so by operating a Bitcoin POS system; this can be done with a custodial wallet like WoS or non-custodial with software like BTCPayServer.
You could build relationships with certain customers, and they can come in and pay for goods and services and add an extra balance to the payment, and you simply hand over the “change” in cash or Bitcoin.
Crackdown or cracks emerging?
Germany’s crackdown on Bitcoin ATMs represents a significant step in the ongoing effort to peg every German down and squeeze them of their last pennies and privacy. By enforcing stricter AML and KYC requirements, German authorities aim to address concerns about financial crime, consumer protection, and tax evasion.
While these measures may present challenges for users and businesses, they are good tests for the Bitcoin network; if governments don’t crack down on it, how will we know it is censorship-resistant or seizure-resistant?
While the market will provide solutions like better P2P options, it will still be up to German citizens to decide whether to choose KYC coins or non-KYC and let the liquidity flow where it may.
