Virtual Currency Plummets Following Fed Seizure of Black Market Website

Jacob Harper |

The digital currency Bitcoin, which just yesterday came under intense scrutiny of banking regulators in New York, tanked in value following a massive government crackdown on an illegal marketplace that exclusively utilized the digital cryptocurrency.

The Silk Road, an online market where users could buy drugs, guns, and falsified identification documents using the anonymous Bitcoins, was shut down by the FBI and ICE on Oct 1, and its operator was arrested on federal narcotics charges.  

Ross William Ulbricht, known by his nom de plume “Dread Pirate Roberts,” had been running the illegal site since 2011, and had long avoided authorities by staying cloaked in the “Deep Web,” or anonymous underbelly of the internet, via safeguards and secret servers. While arresting Ulbricht and shutting down Silk Road, the government also seized 26,000 bitcoins from Ulbricht’s virtual wallet. This amounts to .002 percent of the total amount of bitcoins in circulation.

The total bitcoin market is worth approximately $16.4 billion.

Of more pressing issue than Ulbricht's bitcoin stash to the viability of bitcoins as a functioning currency was the amout of trade the Silk Road website provided. Authorities estimate that $1.2 billion in bitcoins traded hands on the site in the last two years.

While the digital currency has its roots in the internet black market, some on the fringes of Wall Street have begun to take it seriously, and made attempts to legitimize it. The Winklevoss twins of Facebook Inc. (FB) fame have referred to Bitcoins as “the internet of money,” and “gold 2.0” and have filed with the SEC to start a Bitcoin ETF.

But as the Ulbricht case has shown, the non-fiat currency is still extremely volatile. The currency swung wildly on Wednesday, losing a third of its value as users sold off bitcoins in a panic.

In August the Department of Homeland Security seized $5 million from bitcoin vault Mt. Gox, alleging the site was operating as a money transmitting company illegally without the regulations placed on companies like Western Union (WU)

Despite critics deriding the currency as reflecting a "sub-kindergarten-level monetary understanding" as Forbes contributor Nathan Lewis asserted, Bitcoin remains popular, and continues to entice investors.

Following the panic following Ulbricht’s arrest, the currency stabilized, regaining three-quarters of the value lost in the morning panic.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FB Facebook Inc. 125.00 1.66 1.35 78,999,777
KUSA Kashin Inc n/a n/a n/a 0
WU Western Union Company (The) 20.20 -0.19 -0.93 2,191,694

Comments

Emerging Growth

Bee Vectoring Technologies International

Bee Vectoring Technologies International Inc, formerly Unique Resources Corp is an technology/agricultural industry company. It develops and owns bee vectoring technology that is designed to utilize bees as natural delivery…

Private Markets

Snapwire

A peer-to-Peer authentic photo marketplace disrupting the $10B commercial photography industry.

MyForce, Inc.

As parents, we constantly worry about the safety of our loved ones. The media bombards us with incidents from across the nation school shootings, frequent assaults on campuses, and crimes…