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Summary:

Bitcoin traders were rattled yesterday on news that Homeland Security had shut down a popular form of trading the cyber-currency. Today, the price recovered as news emerged that the feds are targeting an exchange more than Bitcoin itself.

bitcoin

The value of Bitcoin fell more than 10 percent overnight on Tuesday, apparently in response to Homeland Security’s decision to seize funds at a key exchange, Mt. Gox, where speculators trade the cyber-currency. The price has since returned to early-week levels, however, while new details came out about the nature of fed’s investigation. Here’s a look at the median price:

Bitcoin price screenshot

In case you missed it yesterday, the federal government took its most serious action to date against Bitcoin-related activity when it shut down money transfers between Mt. Gox and payment processing service, Dwolla. Dwolla is one of the few easy ways Americans can buy and sell Bitcoins at Mt. Gox.

On Wednesday, Ars Technica unearthed the search warrant that Homeland Security used to seize a bank account that Mt. Gox used to obtain dollars from Dwolla. The account was registered to Mutum Sigillum LLC, a Delaware subsidiary of Japan-based Mt. Gox.

In an affidavit, a federal agent states that Mt. Gox owner, Mark Karpeles, lied when opening the bank account in 2011. Specifically, Karpeles said “no” to questions asking if he would be engaged in a currency business and money transmissions.

GigaOM meet up BitCoinThis misrepresentation means Karpeles has apparently violated a law prohibiting unlicensed money transmission businesses. Breaking the law can result in a 5-year prison term and permits the feds, under another statute, to seize property and keep it.

So what does all this mean for Bitcoin aficionados? In short, the investigation is more bad news for Mt. Gox and Karpeles than for the currency itself. The loss of Dwolla as a payment mechanism at Mt. Gox will crimp a popular source of liquidity for speculators but more options are appear poised to come along. These include Coinbase, which recently received $5 million from Fred Wilson’s Union Square Ventures, and OpenCoin which just got backing from Google Ventures.

To hear what all the Bitcoin fuss is about, come join us on Thursday in San Jose for a GigaOM meet-up from 6 to 9 where we’ll be talking with CEO who use it as well as engineers from Facebook and Google about the currency’s perils and possibilities. The event is free (and filling up fast!) thanks to our friends at Ribbit Capital. It includes cocktails too.

  1. Mugillum? That’s a typo. Should be Mutum.

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  2. What is this 10% drop you’re talking about? Weighted value has hovered between 73-77 for 2 weeks, its the most steady its been for over 3 months. Get your facts right maybe? It really doesn’t take 1 minute to just look at the graphs for yourself, that’s just utter laziness not even getting that right.

    And the Bitcoin economy is MUCH better off with diversifying itself amongst other exchanges. So much of it going through MtGox was/is a bad thing.

    So, apart from your incorrectness, its all rosy and going great for Bitcoin ;)

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  3. Looks like Karpeles made an amateur mistake. Also, I think we should all keep this in perspective. When he set up that account, Mt Gox was trading virtual currency for Magic the Gathering… Not exactly a world changing currency.

    Someone at DHS must have another agenda against Bitcoin. This is a stern sanction for essentially a clerical error.

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  4. Anthony J. Alfidi Thursday, May 16, 2013

    Google Wallet and Gmail will be disruptive to remittance, scams, and hawala. This is a much better tech than Bitcoin.
    http://alfidicapitalblog.blogspot.com/2013/05/social-implications-of-integrating.html

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  5. Anthony J. Alfidi was paid $10.00 to post that for the Federal Reserve.
    Google wallet and Gmail are just extensions of the dollar, they are not a currency unto themselves. Jealous haters, all of them.

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  6. Bitcoin is virtual though. I started a Silver Certificate business where people trade in silver :D

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