Bitcoin exchange hits pause button

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Bitcoin exchange hits pause button

Virtual currency platform cites banking, regulatory uncertainty for shutdown

Sep 1, 2013 @ 7:43 am (Updated 7:52 am) EST

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Bloomberg News

Tradehill Inc., an exchange for virtual currencies such as Bitcoin, is temporarily suspending trading, citing unspecified banking and regulatory reasons.

“This decision has not been made lightly and we regret having to take such action,” the company said Friday on its website. “However, we embrace the silver lining of our situation and plan to take this opportunity to upgrade, improve, and polish our trading platform.”

Tradehill has been seeking more business from investors and financial institutions as it works to legitimize virtual-currency trading in the U.S. Created four years ago by a person or group using the name Satoshi Nakamoto, Bitcoin is a virtual currency that can be used to buy and sell a broad range of items -- from cupcakes to electronics to illegal narcotics.

The San Francisco-based company is among several upstart exchanges such as Mt. Gox and BTC-e that have emerged to support Bitcoin trading. Jered Kenna, chief executive officer of Tradehill, didn't immediately return requests for comment.

Tradehill registered this month with the Financial Crimes Enforcement Network, a U.S. Treasury agency that targets money laundering, the company said in its statement. Steve Hudak, an agency spokesman, said he couldn't comment on any regulatory issues for a specific firm.

FinCEN Guidance

FinCEN, as the Treasury agency is known, released guidance in March saying digital-currency administrators and exchangers are considered money-services businesses subject to regulations and anti-money-laundering controls. The agency, along with other federal regulators and law-enforcement officials, met this week to discuss the industry with a trade group, Bitcoin Foundation.

Regulators in Tradehill's home state have also been watching virtual currencies. In May, the California Department of Business Oversight -- then the Department of Financial Institutions -- issued a cease-and-desist letter to Bitcoin Foundation to stop money transmission activity without state approval. The foundation said in a response letter that it “does not operate a bitcoin exchange and does not sell bitcoin to consumers.”

Mark Leyes, a spokesman for the California regulator, said the agency does not discuss its actions regarding specific firms.

Tradehill told customers last week it would transfer their accounts to a U.S. credit union to make it easier to complete transactions. The company said in an e-mail to clients that customer accounts were being frozen as of Aug. 23 for the move, and clients who didn't want to switch to the Internet Archive Federal Credit Union were offered the option to liquidate their holdings.

The credit union is also concerned that the regulatory environment for Bitcoin trading requires greater “clarity,” according to the firm's CEO, Jordan Modell.

“Our credit union has worked within the evolving regulatory environment, which has not always been easy,” Modell wrote in a blog post on his firm's website. “Until we have further clarity, we are unable to service some of our corporate members.”

(Bloomberg News)

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