Dwolla Bitcoin exchange

Payment processing company Dwolla is to stop supporting Bitcoin and other virtual currencies from the end of this month, in an unexpected move that is likely to impact a number of Bitcoin startups.

In an email to customers (highlighted by Coindesk) Dwolla, which processes “millions” of dollars in payments per day, says there is “uncertainty and confusion” around Bitcoin and that its current work with Bitcoin exchanges is not sustainable due to the low scale.

Recent interest involving virtual currency and its exchanges has created uncertainty and confusion around virtual currency, and Dwolla’s relationship with a small number of its exchanges. This has forced Dwolla to reassign resources, funds, and services.

As Dwolla gears up for a new stage of growth, we recognize that we can no longer sustain this merchant base (0.1 percent of Dwolla merchants) and its unique needs, and that attempting to do so jeopardizes both of our communities’ starkly different, but similarly ambitious, vision for improving payments.

Back in May, the US Department of Homeland Security seized $2.9 million in Bitcoin from Dwolla, as part of an investigation into Mt. Gox, the Web’s largest exchange service — although there’s no immediate suggestion that this is directly related. (Mt. Gox. itself suspended US dollar services on its Bitcoin exchange for two weeks this summer in what may also have been related to the US government investigation.)

Could it be that, having shut down Silk Road — the underground marketplace for illicit goods — authorities are moving on to pressuring organizations that help the Bitcoin money system flow, or are Dwolla’s reasons exactly as stated? At this stage it isn’t clear, and that isn’t what Dwolla is suggesting.

Dwolla is planning a staggered withdrawal of service to virtual currency exchanges and services, as follows:

Today, October 10 (1500h, Eastern Time): Only existing Dwolla users will be able to send funds to your business.