Online Drug Market Raid Sparks 20% Selloff for Bitcoin

Bitcoin tumbled more than 20% on Wednesday after the FBI raided Internet drug market Silk Road and seized $3.6 million worth of the digital currency.

The law enforcement action highlights legal and regulatory concerns that have at times caused volatility for Bitcoin, which allows buyers to remain confidential.

A criminal complaint filed on Tuesday hit Ross William Ulbricht, also known as the “Dread Pirate Roberts,” with a slew of charges, including narcotics trafficking conspiracy.

The U.S. alleged Ulbricht and Silk Road generated sales of 9.5 million Bitcoin, which is equal to about $1.2 billion.

The government said it seized $3.6 million of Bitcoin during the raid by taking control of Silk Road’s digital wallets.

Bitcoin holders appeared to be spooked by the news, at least initially. After closing at $140 on Tuesday, the digital currency dropped as low as $110 on Wednesday, according to leading Bitcoin exchange Mt. Gox. Bitcoin was trading at $127.80 in more recent action.

The raid on Silk Road highlights how Bitcoin’s anonymity appeals to nefarious characters that draw the attention of law enforcement.

Despite these concerns, Bitcoin has drawn the interest of a number of prominent venture capital and other investors, including Cameron and Tyler Winklevoss. The twin brothers who sued Facebook (NASDAQ:FB) CEO Mark Zuckerberg, recently announced plans to launch an exchange-traded product that would track Bitcoin.