Payments firm Dwolla is severing its ties with bitcoin exchanges and services, cutting off a major route for moving funds between the virtual currency and its fiat cousins.

In a vague e-mail to bitcoin exchange BitBox and other merchant customers, Dwoll hints at regulatory concerns, saying that "recent interest" in virtual currency has created "uncertainty and confusion", including about the firm's "relationship with a small number of its exchanges".

The start-up claims that this interest has forced it to "reassign resources, funds, and services" and that it can no longer sustain the bitcoin customer-base and its unique needs. The e-mail sets out a timeline for withdrawing support for these customers by the end of October.

Although Dwolla says that bitcoin-related firms account for just 0.1% of its merchant customers, it has not revealed what percentage of its transactions involve the currency.

The company has established itself as a major gateway for bitcoin's users to switch between it and dollars. However, the relationship has been tricky: In May Dwolla was served with a court order by the US Department of Homeland Security, which seized an account belonging to exchange MT. Gox holding $2.9 million.

Last year, another exchange, TradeHill, filed a lawsuit against Dwolla seeking $2 million in damages and claiming that the processor had removed over $100,000 dollars from its account without notice.

The latest move has prompted anger among crypto-currency enthusiasts on Reddit and bitcointalk, with many vowing to close their Dwolla accounts.