Bitspend, an online firm that allows customers to use bitcoins for payment anywhere online, has announced on its Reddit page that its bank account has been frozen by Chase Bank. Bitspend works by processing and paying for online shopping orders from customers on their behalf and then being reimbursed with bitcoins. After processing an order, bitspend customers are sent an invoice that includes details of their order and payment amount that is priced in bitcoins. Received bitcoins are then exchanged back into dollars to pay for orders. As their business revolves around large volumes of transactions in and out of their account, as well as receiving of fund transfers from bitcoin exchanges, Bitspend’s account caught the eye of Chase employees.
According to Bitspend, they were told by a Chase employee that “Your account will be reviewed to decide whether the source of deposits(exchanges) is legitimate and we will decide within 30 days if we will be returning any or all of your money.” As a result of the account freeze, Bitspend has currently suspended the processing of orders until the opening of a new account or gaining re-access to their frozen funds. Justin Whelchel, Founder of Bitspend added that Chase had even frozen his personal accounts, and stated “This means that we cannot even pay our credit bills with the money being deposited from Exchanges.”
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Whelchel explained that their accounts and bitcoins are being viewed as ‘high risk’ by Chase and other banks as he wrote on Reddit “Chase bank and another bank, have both decided that we as a Bitcoin based business are “Too High Risk” of clients, and have frozen/shut down our accounts. We were NOT given notice, and we were simply told “your funds will be sent to you by check within 30 days”. This is not something we were ever warned about, given notice of, or even received the courtesy of a phone call from the bank beforehand.”
The events underline one of the biggest fundamental problems bitcoins experience, handling bitcoin to fiat currency exchanges. As financial institutions remain the primary gateway for facilitating both the end transfer of bought and sold bitcoins (and other alternative currencies as well) creating strong relationship with traditional banks is a key part of any bitcoin business. However, the hesitation of banks to cater to bitcoin businesses points to a tremendous opportunity for financial firms willing to be pioneers and create services for such firms. As a result, we expect this gap to be soon filled.