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Bitcoin price nosedives after bust of underground drug market Silk Road

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More than $3 million worth of Bitcoin seized

bitcoin 1020 (casascius)
bitcoin 1020 (casascius)

The price of Bitcoin, the semi-anonymous e-currency that acts like virtual cash, is falling rapidly after the bust of underground drug marketplace Silk Road. Silk Road was by far the largest single source of Bitcoin transactions, conducting more than $1 billion worth of business exclusively in the virtual currency. Federal agents shut the site down today and arrested the man they say is behind it.

The news of Silk Road's demise sent the price of Bitcoin, which had been holding at around $130, plummeting to an average of around $85 in less than three hours with large spikes in trading activity. At the time of writing, the average price had rebounded back up to $108. The sell-off appears to be driven by uncertainty about the future of the virtual economy, along with opportunism driven by speculators who are seeing a chance to make money off the currency's fluctuations.

The sell-off appears to be driven by uncertainty about the future

In addition to spurring fears about Bitcoin's future, the closure of Silk Road resulted in the freezing of 26,000 bitcoins worth more than $3 million that were sitting in users' accounts. Users on the Silk Road forums, which continued operating, expressed remorse that they had not removed their deposits. "I am DEVASTATED That SR is permanently down! But what happens to the amount of BitCoins I had in my wallet?!?! Where the fuck did they go?!?" user prophexy bemoaned. "They can't just take EVERYONE'S coins can they?" another user asked.

Given the volatility of Bitcoin, it will be a few days before the full impact of Silk Road's disappearance is felt.

CORRECTION: An earlier version of this post said that the FBI seized $3.6 billion worth of Bitcoin; it was $3.6 million.