Tradehill Inc., an exchange for virtual currencies such as Bitcoin, is moving customer accounts to a U.S. credit union, a shift designed to make it easier for clients to complete transactions.
Holdings with Tradehill will be transitioned to federally-insured accounts at the Internet Archive Federal Credit Union, according to an e-mail to clients obtained by Bloomberg News. Tradehill is moving accounts to the credit union to win more business from investors and financial institutions that trade in Bitcoins, according to a person with knowledge of the matter, who asked not to be identified because the plans aren’t public.
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 surge in the value of Bitcoins has made millionaires out of people who loaded up on them early on — however briefly. Many of them are self-described libertarians, drawn by the idea of a currency that exists outside the control of governments.
“It’s a big move for the Bitcoin market in terms of legitimizing it,” Ugo Egbunike, senior ETF specialist at IndexUniverse, an index-fund researcher, said in an interview. “They’ve made it clear, the types of people they cater to: sophisticated, legitimate investors.”
Tradehill, based in San Francisco, is among several upstart exchanges including Mt. Gox and and BTC-e that have cropped up to support Bitcoin trading. Tradehill’s client deposits will be insured for as much as $250,000, according to the e-mail to customers.
Customers must provide government-issued photo identification and a social-security number to transition their Tradehill account to the credit union, according to the e-mail. Accounts were being frozen as of Aug. 23, and clients who didn’t want to switch to the credit union were offered the option to liquidate their holdings, according to the e-mail.
The New Brunswick, New Jersey-based credit union is led by Brewster Kahle, founder of the Internet Archive, one of world’s largest online digital libraries. In an April blog, Kahle said that the Internet Archive began receiving donations of Bitcoins in 2011, and that he thinks of it “as the local currency of the Internet.” The Internet Archive set up a Bitcoin ATM, and even paid some employees in Bitcoin, he said.
Kahle didn’t return a request for comment.
“It is vital to us to serve and protect our clients as well as facilitate law enforcement efforts to keep us all safe by combating the use of the financial system to launder money,” Ryan Singer, co-founder of Tradehill, wrote in in an e-mailed statement. “For legal and confidentiality reasons, we cannot speak to our clients’ banking relationships. For security reasons, we cannot speak to our own banking relationships.”
Bitcoin is similar to the U.S. dollar, the euro or the Mexican peso — except that it isn’t controlled by any country. While it’s generally not used for transactions that require real-world currency, a handful of technology companies — notably blogging-tool maker WordPress — are starting to accept payments in Bitcoin.