Dwolla has announced it can no longer work with virtual currency exchanges and other bitcoin-related services.

The online payment system provider emailed its customers who operate companies related to bitcoin and other virtual currencies to inform them it is withdrawing its services as of 28th October at 16:00 CT.

Dwolla’s reasons for doing so aren’t exactly clear, with the email stating:

“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.”

The company is to gradually wind down the services available to its virtual currency customers over the two-and-a-half weeks before cutting them off completely. From today, for example, only existing Dwolla users will be able to send funds to the businesses in question, while on 15th October, those bitcoin businesses will no longer be able to receive money through Dwolla and will only be able to send it – until 28th October, when these business accounts will be fully suspended.

As ever, Reddit forum members have differing views on the development, with user ‘trifith’ stating that it was “going to happen sooner or later”.

“The point of exchange between Fiat and BTC is the single weakest point in the bitcoin ecosystem. We shall see what comes of this,” (s)he added.

While ‘ths1977’ said:

“The U.S. government is really cracking down hard on bitcoin lately, I won’t be surprised to see coinbase go next. I have a sneaky feeling though that this is all just a ramp up to cleaning bitcoin up so that ‘they’ can get their stinky hands all over it.”

The full email from Dwolla to its virtual currency customers can be found here.

This move comes shortly after Capital One closed the bank account of a company after it started selling purely commemorative silver and copper bitcoin coins. According to Mulligan Mint’s CEO Rob Gray, the bank hadn’t bothered to do their research properly, as merchant services said the account was cancelled because the company was selling bitcoin.

What do you make of the news? Are banks and payment system providers running scared due to government interference?