Bitcoin bourse Tradehill freezes trading to deal with regulatory issues

by Crayton Harrison and Jesse Hamilton

Bloomberg

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 today 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. Tradehill CEO Jered Kenna didn’t immediately return requests for comment.

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

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 last week to discuss the industry with the 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.