Cyprus, the bank run and the announcement of the first bitcoin ATM

The bitcoin ATM that was supposed to save Cyprus and had nothing to dispense

With banks closed and a daily withdrawal cap of 100 euros, Cyprus in March 2013 was the perfect setting for selling a solution. It arrived in the form of an announcement: the world's first bitcoin ATM, supposedly destined for the island in the middle of a bank run. There was one problem: no working machine existed, there was no cash to load, and above all, not a single merchant accepted the cryptocurrency.

An announcement with more hype than hardware

The news did not confirm that Cyprus had bitcoin ATMs up and running. At most, it confirmed that someone was announcing one. The difference matters: the infrastructure was nonexistent, and the project's presentation looked more like a business card than a business plan. The only real thing was the context: while European policymakers negotiated in Brussels the fate of other people's money, the market reacted in its own way.

Even so, the PR operation worked. In the middle of a banking crisis, the word bitcoin in the same headline as Cyprus guaranteed attention. And that was exactly where the problem began.

What good is a bitcoin ATM during a bank run?

The skeptical reading was simple. A bitcoin ATM exchanges euros for cryptocurrency and vice versa. On an island where banks were not releasing cash and shops only accepted euros, that exchange made no sense: nobody wanted to part with the banknotes they needed to buy the basics, and the machine would have no cash to dispense in return for digital coins. The real utility, according to that analysis, was precisely the opposite: serving as bait to sell expensive machines to people who didn't read the fine print.

Bitcoin advocates responded with a forward-looking argument: the cryptocurrency cannot be confiscated, it does not depend on a bank with the tap turned off, and its media exposure was in itself good news. It was not a ridiculous position. At the same time, Bloomberg reported that the US government was beginning to regulate virtual currencies, and CoinLab was preparing to launch its services in the United States and Canada with Mt. Gox and Silicon Valley Bank starting March 31, 2013. Bitcoin was beginning to leave the ghetto.

The deeper debate: safe haven or scam

The discussion had another layer. Those advising diversification into bitcoin were met with an easy comeback: gold cannot be split into a digital payment, bitcoin can. Against that, skeptics pointed out that in a real economy of a loaf of bread and a liter of milk, cash was still king. And there was an option more down-to-earth than monetary revolution: a round-alucinación ticket from Larnaca to Athens cost 194 euros and allowed moving 10,000 euros legally per flight. No cryptocurrency was needed to sidestep a bank run; a boarding pass and a suitcase were enough.

The curious thing is that in March 2013 both readings were partly right. The announcement was more hype than hardware, but the direction the regulatory and financial wind was blowing could already be seen. The question remains the same: when the system seizes up, is the solution a currency the bakery won't accept, or an ATM with no banknotes to dispense?