For the past year, Canadian electronic commerce payments outfit Paxum had been an option for Bitcoin users wishing to transfer funds to and from exchanges.

However, spokesperson Ruth Blair says in a message board post that after two weeks of talks with banking partners, MasterCard and auditors, Paxum has decided to cut ties with Bitcoin, closing all accounts related with the currency.

"After much discussion and consideration it has been decided that, though Bitcoin's are not illegal, they are considered high risk. At Paxum we do not want to jeopardise our clients, or our business model, in any way. In light of that, and after considerable consultation, we have chosen to take the pro-active step of ceasing all business with Bitcoin and Bitcoin Exchangers," says Blair.

After accounts were closed and "conspiracy theories" swept forums, Blair posted a second statement saying banks "instructed us to close all Bitcoin-related accounts. We had no choice but to follow those instructions and therefore, all Bitcoin associations were severed on Friday [10 February]."

In a separate blow to the currency, Bitcoin exchange TradeHill has shut down, blaming Paxum's decision, regulatory changes and a dispute with a payment processor.

Says CEO Jered Kenna: "Due to increasing regulation TradeHill can not operate in it's current capacity without proper money transmission licensing. Combined with multiple bank account closures and Paxum's decision to close all Bitcoin business accounts, we have deemed the best course of action is to halt trading and pursue licensing while raising funds."

Kenna also revealed that "one of our payment processors removed over $100,000 dollars from our account without notice" meaning employees have been working without pay for months. TradeHill says it is taking legal action against the unnamed processor and hopes to release a new site by the end of the month.

The latest blows saw Bitcoin's value slump around 20% to about $4.50 on the MT.Gox exchange, well down on its peak of $30 last summer.

Finextra verdict: Taken at face value, Paxum's decision to cut ties with Bitcoin is worrying. From the blockade of WikiLeaks to the attempts by US politicians to debarr Iran from the Swift network, it now seems acceptable for politicians and payment scheme incumbents to use their muscle to switch off infrastructural support for potential trouble-makers. At what point does a legitimate business decision become an abuse of power? We're treading a fine line here people.