I think that that is what I was getting at - you are withholding this user's funds, not because purely of fraud, but because it helps you to reduce future incidents of cheating. This is deterrence, and it is not a good reason to withhold funds.
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However that is merely opinion that it is not good. It will likely reduce the number of cheaters, but it carries heavy consequences such as damaging your reputation permanently.
We do thank you for your feedback and we understand your point, of course. As mentioned, this is not a Betcoin thing, but a policy of every online casino and sportsbook. We don't think this will affect our reputation with legitimate players and we believe strongly that once this is resolved, we will be stronger than ever.