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BitCoin Exchange TradeHill Shuts Down In Wake of Paxum Lockout And Regulatory Pressure

San Francisco based TradeHill announced on Monday 2/13/2012 that they were halting all BitCoin trading immediately, and would return customers’ deposits via check payments. The news comes just days after Quebec-based Paxum cut off payment services for all BitCoin related businesses, including TradeHill. This severely limited TradeHill customers’ ability to “cash out” their bitcoins into US dollars.

TradeHill CEO Jared Kenna said on his blog yesterday “Effective immediately TradeHill will be shutting down trading / deposits and returning all client funds.
Due to increasing regulation TradeHill can not operate in it’s current capacity without proper money transmission licensing. Combined with multiple bank account closures and Paxum’s decision to close all Bitcoin business accounts, we have deemed the best course of action is to halt trading and pursue licensing while raising funds. SEPA transfers for our Euro customers have been enabled.”

I spoke with Jared a couple of months ago at a BitCoin meetup at Google in Mountain View, CA. We discussed the need for his business to have a money transfer license, and the expense and complexity of applying for one. It seems like this ongoing burden, combined with a previous loss of $100,000 from a payment processor who arbitrarily withdrew funds citing chargebacks, plus the lockout by Paxum were just too much.

Canadian Banks Put Pressure On The BitCoin Economy – Paxum Halts BitCoin Relationships

It has been a tough week for BitCoin.

Canadian payment processor Paxum abruptly terminated service for all BitCoin exchanges on Friday 2/10/2012. They say that their banking partners forced them to terminate all services for BitCoin businesses because the currency was too “risky”.

Quebec-based Paxum is primarily a payments processor and peer-to-peer payment provider for adult website businesses. They started working with a number of BitCoin exchanges last year, and were processors for both MtGox and TradeHill.

This looks to me like the banks (and perhaps their regulators) are afraid of money laundering through BitCoin. In an interview with BetaBeat, Paxum spokewoman Ruth Blair said “The main fears had to do with the fact that it’s a decentralized currency and as such there isn’t much control over it. In the end, it is converted to a legal tender (generally USD), but it is unclear to them how this currency is supported and who pours actual money into it, and more importantly, why.”