Crypto ATM industry loses bid to block Tennessee ban

A federal court has denied a request to suspend Tennessee’s new ban on crypto ATMs, which is an early legal blow to the kiosk sector at a time when state governments are moving from imposing restrictions on the devices to outright bans.

Tennessee Attorney General Jonathan Skrmetti announced the ruling on July 7, stating that Public Chapter 766 would continue to be enforceable while a constitutional challenge by CoinFlip operator GPD Holdings LLC and kiosk owner Charles Wernicke is pending. While the court did not rule on the constitutionality of the ban, it determined that the plaintiffs did not meet the high threshold necessary to stop its application before the hearing.

Court lets Tennessee enforce the ban

According to Public Chapter 766, installing, operating, or allowing a virtual currency kiosk anywhere in Tennessee is a Class A offense.

Plaintiffs stated that the law would result in real damage and unlawfully burden interstate commerce. But U.S. District Judge Travis McDonough stated that they were not convincing, concluding that the interest of protecting consumers is stronger than the need for emergency relief required by the plaintiffs. The judge made it clear that he based his ruling on the limited evidence the court had at the preliminary stage, and broader issues of constitutionality would have to wait for further proceedings.

The ruling gives a first glance at the legal issues to be faced during the litigation. Instead of outright rejecting the claims, the court hinted that CoinFlip proved insufficient facts to demonstrate that the law in Tennessee affects interstate commerce, while the Tennessee government relied on legislative conclusions and statistics relating to fraud on the federal level.

“Cryptocurrency ATMs are tools for scammers targeting vulnerable Tennesseans and are rarely used for anything approaching a legitimate purpose,” Skrmetti said after the decision, adding that the legislature acted to protect consumers from increasingly sophisticated fraud schemes.

CoinFlip has objected to this interpretation. In legal documents, CEO Ben Weiss disclosed that the kiosks help clients who use cash, are unbanked, or do not like tying their bank account to cryptocurrency platforms. The firm also insisted that taking away its machines from Tennessee would irreversibly damage its relationship with customers and retail associates it developed over several years.

Tennessee reflects a broader regulatory shift

The Tennessee court ruling arrives at a time when elected officials across the United States are becoming more vocal in establishing regulations pertaining to crypto ATMs.

Indiana was the first state to entirely prohibit their use; since then, states such as Tennessee and Minnesota have followed suit; however, other states have taken a different approach and opted to enact regulations regarding the use of crypto ATMs. According to the American Bankers Association, at least 20 states have different measures in place regarding crypto ATMs, including transaction caps, licensing requirements, and mandatory fraud reimbursement programs.

The debate regarding crypto ATMs has also reached Congress, where Representatives Sean Casten and María Elvira Salazar introduced the bipartisan Stop Crypto ATM Scams Act, stating that the payment kiosks have become a popular means of payment for scams aimed at older people. Casten said that extortionists are able “to prey on seniors” quickly and easily, while Salazar feels that more should be done to protect retirees from scams.

Some elected officials think that stricter regulations may not suffice. For instance, New Jersey Senator Paul Moriarty told The Jersey Vindicator that crypto ATMs have “no legitimate purpose” and that their operators are reaping profits from scammed people.

The changing view on crypto ATMs is directly connected to growing losses from scams. According to the FBI Internet Crime Complaint Center data in 2024, victims lost $247 million in scams related to crypto ATMs, many of whom were older people.

Industry faces mounting legal and commercial pressure

The ruling from the court is increasing the pressure on crypto ATM operators, most of whom face economic difficulties and greater scrutiny from regulators.

In Texas, there were around $56.8 million in losses caused by crypto ATM fraud last year, more than in any other state. Bitcoin Depot, one of the leading companies in the industry, has filed for Chapter 11 bankruptcy due to huge declines in income. Regulators in multiple states have either initiated lawsuits or introduced new measures against the operators of kiosks.

The industry claims that it is not the machines themselves that generate fraudulent activities. In fact, operators argue that criminals lure unwitting victims into committing unlawful transactions and boast of the use of transaction monitoring, customer identification, and fraud prevention techniques that many companies have put in place.

What comes next

Although Tennessee secured an early courtroom victory, the constitutional fight is far from over.

This decision does not indicate that a statewide crypto ATM ban is constitutional. Rather, it gives Tennessee the right to enforce its law while its constitutionality is being litigated. This may matter for regulators elsewhere—state lawmakers looking to impose stricter measures may see this verdict as a sign that courts could uphold cases of consumer protection laws while constitutionality claims take their course.

For the crypto ATM industry, the litigation has become about more than Tennessee. As lawmakers increasingly question whether kiosks have a place in society or whether they should be controlled with various laws, the CoinFlip case could turn out to be a very significant example when it comes to defining how much states can do when it comes to limiting physical access to digital assets.

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