Bitcoin value dropped dramatically on Wednesday after word that law enforcement officials had shut down the online drug marketplace Silk Road, seizing millions of dollars worth of the online currency in the process.
The bitcoin had closed trading on Tuesday at $140, but after word of the Silk Road shutdown, it sank to $129.
For many critics, the Silk Road bust confirmed fears of the vulnerability of the bitcoin. Many had argued that the anonymity of the bitcoin made it a perfect medium for drug sales and money laundering, and Wednesday’s bust seemed to prove that point.
The bitcoin is a form of virtual currency that can be sent via computer or other electronic devices. Established in 2009, the bitcoin came to prominence in 2012 due to the European financial crisis.
The bitcoin was used in transactions on Silk Road, a site that allowed sellers to post advertisements for drugs and other illegal products. On Wednesday, FBI officers arrested the site’s owner, 29-year-old Ross William Ulbricht, known online as “Dread Pirate Roberts.”
Some of the drop in bitcoin value may have come from skittish drug traffickers who are trying to pull out their money, said Garth Bruen, a security expert at Internet consumer group Digital Citizens Alliance.
“They’re going to be poring all over his records, getting subpoenas for every piece of data and account he has ever used and trying to figure out who all these different dealers are,” said Bruen. “People are jumping ship.”
FBI officials also seized $3.6 million worth of bitcoins when Silk Road was shut down.
The drop in bitcoin value came at a bad time for the emerging form of currency. Its backers are trying to legitimize the bitcoin and alleviate fears of the unregulated, unbacked form of money, and are doing so under governmental scrutiny. Earlier this year, Senator Tom Coburn called for the bitcoin and other forms of virtual currencies to be monitored and regulated.