Bitcoin Securities Exchange BTC-TC Shutters $12M Operations, Cites Regulatory Environment

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BTC Trading Corp (BTC-TC) announced that it will close all trading by October 7, two weeks from today. BTC-TC is one of the largest bitcoin securities exchanges, responsible for 101,000 BTC ($12M) in deposited securities and 2,900 BTC ($350K) in daily volume. The company’s notice cited “recent changes in the virtual currency regulatory environment” as the reason for shuttering operations. Also closing is LTC-Global, a litecoin-denominated securities exchange also run by Ethan Burnside, the same operator as BTC-TC.

Closing Process

All trading was temporarily halted and order books were cleared after the announcement was made at 5am EST. After trade is permanently halted on October 7th users will have three weeks to download and store all information before the website closes permanently on October 31. Users that do not liquidate their current holdings will have to work with issuers of their securities to determine what the next course of action will be.

The company’s notice suggests all market participants verify their BTC or LTC addresses to aid in the coordination of settlement with issuers if necessary. The company regularly sends updated asset holder addresses to issuers. In the case of required settlement outside of BTC-TC, issuers can require each shareholder to issue a statement signed with the address listed in the ownership roster from BTC-TC. GLBSE, a leading bitcoin securities exchange at the time, similarly closed in October 2012. ASICMiner, one of the most prominent issuers in the space, worked closely with shareholders after GLBSE’s closure to ensure securities were appropriately distributed.

Regulatory Pressure

The legality of BTC Trading Co. and LTC-Global, registered in Belize and operated from Oregon, has been questionable since the site opened originally. The company’s FAQs state repeatedly that assets on the site are not to be considered real and openly acknowledges Burnside’s lack of necessary funding to support significant legal oversight.

Regulations in the digital currency space have seen a number of developments so far this year, but recent actions from the SEC specifically are likely the impetus for the closure. This summer, the Securities and Exchange Commissions charged Trendan Shavers of the Bitcoin Savings and Trust with violation of security registration laws, among other charges. During the hearing of that case, the presiding judge wrote that “Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money.”

Those developments are in addition to FinCEN guidance earlier this year stated that virtual currency exchanges are considered money transmitters and must be registered as such to operate legally. Accordingly, BTC-TC’s assertions that assets on the site should not be considered real is subject to far more concrete scrutiny than when the site began operations, and could put the company’s founders at increased risk of prosecution.

Assets Deposited

BTC-TC is one of the four most popular bitcoin securities exchanges, alongside BitFunder, Havelock Investments and MPEx. BCT-TC traded traded 39 different assets including Stocks, Bonds, Futures, Funds, among several others. The total value of assets deposited (7 day average value before the announcement) is 101,000 bitcoins, or over $12M at the current exchange rate. The largest three were mining companies, ASICMiner, LabCoin, and Active Mining. The objective of these companies is to sell bitcoin mining equipment, mine on their own equipment, or both.

asset volume

ASICMiner dropped 19% on the news falling from 1.6 to 1.3 BTC per share. Labcoin fell 45% from 0.022 to 0.012, and Active Mining dropped from 0.019 to 0.01 before rebounding to 0.015.  In the wake of BTC-TC closing there will be significant pressure on the remaining exchanges to adjust to increased market needs. Active Mining has already announced plans to move shares from BTC-TC to BitFunder and it is likely others will follow suit. If the remaining exchanges are forced to close their operations in a similar manner, it is likely that the exchanging of shares will move back to forums with manual processing of trades between exchanges.

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