Bitcoin Exchange Shuttered; Nerds Rattled

Bitcoin, everyone’s favorite anonymous and somewhat fungible cryptographically backed currency, means many things to many people: speculation vehicle, anarcho-capitalist fetish, scam, or even convenient way to buy drugs over the internet. The currency sparked a frenzy last summer when media attention drove the price of Bitcoins to $30 each, but enthusiasm has since waned. Extreme price volatility and limited usability will do that to a young currency.

In another blow to widespread adoption, TradeHill, an American exchange where Bitcoins can be bought, sold, and converted into other currencies, announced it was suspending trading. In a post on the company blog, TradeHill Chief Executive Officer Jered Kenna cited “increasing regulation” and a lack of funds. “TradeHill can not operate in it’s [sic] current capacity without proper money transmission licensing … [W]e have deemed the best course of action is to halt trading and pursue licensing while raising funds,” he wrote. He also stated that all assets in TradeHill accounts would be returned to clients.

Although TradeHill’s troubles could be mostly due to simple cash flow issues, Ars Technica reports U.S. regulatory authorities haven’t quite figured out what to do with Bitcoin. As a Treasury spokesman told Bank Technology News last month: “The anonymous transfer of significant wealth is obviously a money-laundering risk … At some level we are aware of Bitcoin and other similar operations, and we are studying the mechanism behind Bitcoin.” The spokesman didn’t specify how the government would apply money-laundering laws to Bitcoin.

If businesses dealing with the exchanges can’t be sure they won’t be investigated for money laundering, they have even less of an incentive to take a chance on outfits like TradeHill. The closure has hit the wider community hard; the currency’s value has dropped about 25 percent since the announcement, raising even more questions about its viability as an investment vehicle or unit of exchange. Luckily for Bitcoin enthusiasts, TradeHill’s main competitor, the Japanese site Mt.Gox, is still active and accepting Bitcoin trades.

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