The closure of the Flexcoin bank comes just a week after the collapse of Mt. Gox, a major bitcoin exchange. The Japan-based Mt. Gox also linked its demise to an electronic heist.
The twin failures of Mt. Gox and Flexcoin will likely raise more doubts about bitcoin's ability to establish itself as an alternative currency.
In a notice Tuesday, Flexcoin says 896 bitcoins were stolen from its online vault. That translates into a loss of about $600,000, based on bitcoin's current trading value.
Unlike banks dealing in government-backed currencies, Flexcoin's losses aren't covered by deposit insurance. The Alberta bank says it can't recover from the setback.
Bitcoins that Flexcoin kept offline, or in "cold storage," remain secure, according to the bank. Although Flexcoin didn't provide details, bitcoins stored this way are often documented on paper certificates or on a hard drive that's not connected to the Internet.
The Mt. Gox collapse represents a far bigger blow to bitcoin's credibility. That downfall wiped out about 750,000 bitcoins, or about six per cent of the currency's total circulation. Mt. Gox has filed for bankruptcy protections while it sifts through its financial mess.
Supporters are touting the five-year-old currency as a way to lower transaction fees by cutting out banks and payment processors that collect billions of dollars annually by serving as financial middlemen. Skeptics, including government leaders around the world, deride bitcoins as a currency suitable only for speculators.