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Bitcoin sinks in value after FBI busts Silk Road drug market

By Noel Randewich

SAN FRANCISCO (Reuters) - The price of the bitcoin digital currency dropped on Wednesday, after U.S. law enforcement authorities shut down Silk Road, an online marketplace used to buy and sell illegal drugs.

The bitcoin, valued by many for its anonymity, fell to $129 from over $140 a day before, according to a website for trading bitcoins, Mt.Gox. Earlier, the currency traded as low as $110.

Supporters say using bitcoins offers benefits including lower fraud risk and increased privacy, though critics argue the anonymity it offers makes the currency a magnet for drug transactions, money-laundering and other illegal activities.

The digital currency's drop came after the FBI arrested alleged Silk Road owner Ross William Ulbricht, 29, known as "Dread Pirate Roberts," on Tuesday in San Francisco.

Silk Road allowed tech-savvy sellers to post ads for drugs and other illegal products, which they sold for bitcoins and shipped to customers through the mail, according to the federal criminal charges filed against Ulbricht.

As well as Silk Road shoppers, drug traffickers who worried about the FBI tracking them down with data confiscated from Ulbricht may account for some of Wednesday's bitcoin selloff, said Garth Bruen, a security expert at Internet consumer group Digital Citizens Alliance.

"They're going to be pouring 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."

While bitcoins, which are not backed by a government or central bank, have begun to gain a footing among some businesses and consumers, they have yet to become an accepted form of payment on the websites of major retailers such as Amazon.com.

The charges against Ulbricht said that Silk Road generated sales of more than 9.5 million bitcoins, roughly equivalent to $1.2 billion. There are currently about 11.8 million bitcoins in circulation.

With Ulbricht's arrest, authorities said they seized $3.6 million worth of bitcoins.

(Reporting by Noel Randewich; Editing by Leslie Adler)

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