Bitcoin Value Drops on News of Silk Road Arrest, Shutdown

Thursday, 03 Oct 2013 10:57 AM

By Michael Mullins

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The value of the digital currency Bitcoin dropped by about 20 percent Wednesday afternoon, following the news on Tuesday that the FBI arrested Ross Ulbricht, a 29-year-old who allegedly founded and operated the illicit online marketplace known as Silk Road.

Early Wednesday afternoon, Bitcoin was down to $110, from $140 that morning. By the end of the day, the digital currency regained some ground, closing with a value of $127 on Mt. Gox, the Bitcoin exchange where the digital currency can be converted into traditional currencies, Business Week reported.

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Ulbricht was arrested in San Francisco, Calif., where he allegedly oversaw a small team that managed the illegal website that allows users to purchase guns and guns from around the world using digital currency. Silk Road, which was founded in 2011, was shut down by authorities Tuesday shortly after Ulbricht's arrest.

The website filled encrypted orders that masked the identities of buyers and sellers.

Ulbricht, who operated under the name "Dread Pirate Roberts," a reference to a character in the 1987 film "Princess Bride," collected 9.5 million in Bitcoin revenue since 2011. The profit equates to about $1.2 billion in sales and $80 million in commission, according to the criminal complaint, Business Week reported.

In the previously sealed complaint, which was unearthed by security researcher Brian Krebs, Ulbricht is accused of conspiracy to commit computer hacking, traffic narcotics, and launder money, among other charges through Silk Road, reported.

"Bitcoins are not illegal in and of themselves and have known legitimate uses," FBI Special Agent Christopher Tarbell wrote in an affidavit filed in the case, reported. "However, bitcoins are also known to be used with cybercriminals for money-laundering purposes, given the ease with which they can be used to move money anonymously."

Federal prosecutors also claimed that Ulbricht solicited a Silk Road user for a "murder-for-hire," targeting a user of another site that "threatened to release the identities of thousands of users of [Silk Road]," reported.

Ulbricht reportedly offered the individual $150,000 for the murder, which was apparently never carried out, according to authorities.

Despite the immediate drop in Bitcoin value, some Bitcoin investors argue that it was a positive that Ulbricht had been arrested.

"I think it’s a huge positive," Fred Ehrsam, the co-founder of Bitcoin startup Coinbase, told Business Week. "This kind of takes the biggest target that people might speak negatively about when it comes to Bitcoin, and takes it off the map."

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Related stories:

US Authorities Seize Accounts of Major Bitcoin Operator

Winklevoss Twins Plan Bitcoin IPO, With 'Risks,' Says SEC Filing

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