The U.K. government, led by chancellor George Osborne, wants London to become the world's bitcoin hub. Meanwhile, the Bank of England has released a study detailing the digital currency's virtues. So why, under the surface, is there a "chilling effect" threatening to derail a sector that could bring millions to the economy?



Around the world, mainstream banks afraid of fines and regulatory controls are shutting out firms that provide bitcoin-related services or even associate with the cryptocurrency.



Any bitcoin business can tell you how hard it is to set up a U.K. bank account. Global Advisors (Jersey) Limited (GAJL), advisors to the Global Advisors Bitcoin Investment Fund (GABI), has claimed that HSBC shut down its account recently. Danny Masters, the director of the company - which is fully regulated in Jersey - told CNBC that the excuse given was that in HSBC's opinion GAJL no longer met the "risk reward" profile of the bank and was a "potential money laundering risk."

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Reports from industry website CoinDesk in September said that Wells Fargo in the U.S. have done similar with San Francisco-based startup called QuickCoin. In the Isle of Man, Capital Treasury Services (CTS), which provides financial services to bitcoin businesses, announced September that it was no longer working with bitcoin firms, citing the "highly regulated environment."



Meanwhile, the not-for-profit Bitcoin Foundation - which aims to promote and protect the cryptocurrency - has told CNBC that it has been repeatedly turned down for a U.K. bank account because "bitcoin" was in its name. Meanwhile in China, government pressure on state-lenders has even managed to roil the price of the digital currency.