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News broke earlier today that a site known as Silk Road had been seized by the FBI and that the owner of the site, Ross Ulbricht, 29, had been arrested.  Silk Road was widely regarded as “ for Drugs.”  In the seizure the U.S. government nabbed 26,000 Bitcoins, worth some $3.2 million.  If you’re not familiar with Bitcoins, they are an anonymous digital currency, which we covered more in-depth a few months ago.  Nonetheless, this is the single largest seizure of Bitcoin assets to date.

Now what’s really interesting is that this news has caused Bitcoin prices to plummet, when you would actually expect the opposite to occur.  With the seizure, the U.S. government now has .12 percent of all Bitcoins that will ever be made in its possession. Normally in finance and economics, when there’s less of something, prices tend to go up. But as you can see from the chart below, that isn’t happening.


According to the chart, the red and green bars represent daily high/low, the ones at the bottom are volume, the purple line is a moving average and the band around it is the Bollinger band (which measures the stability/volatility), and the purple line at the bottom is the width of that band.  When the day started Bitcoin prices opened at around $140, they are now around $110.

This is what we call market panic.  The volume has spiked as people are selling their Bitcoins because they fear the digital currency no longer works (as well as what the future has in store for it) now that U.S. government controls so much of it.  While Bitcoin has its shady purposes, the digital currency has also been a hot topic of conversation for many venture capitalists and startups as well.  It will be interesting to see over the next few days and weeks how Bitcoin prices play out.

UPDATE: Here we go. Bitcoin is rallying now, the price of Bitcoin has jumped to around $130 as of this update.  Looks like the initial scare might have worn off, we’ll keep an eye on the price throughout the day.

UPDATE 2: Bitcoin prices seem to have leveled off around $120 for now.

Editor’s note: The article has been updated to correctly reflect the percentage of Bitcoins in possession of the U.S. government.

[H/t Sam Phippen]

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