In this week’s bitcoin review, we take a look at how the auction of Silk Road bitcoins is causing the price of bitcoin to tank.
Back below $600
Yesterday we saw the double-edged sword of bitcoin: its transparent ledger, but not-so-transparent accounts.
Back in October, the federal government seized nearly 30,000 bitcoins from the coffers of the Silk Road, an online black market infamous for its use of bitcoin to facilitate illegal purchases, after it arrested its alleged owner Ross Ulbricht. A judge subsequently ruled in January for the forfeiture of the coins, allowing the US to sell off the 29,655 bitcoins. While it’s been expected for awhile that the bitcoins would be auctioned, likely by the U.S. Marshal’s Service, there had been no activity on the account — until yesterday.
Thanks to bitcoin’s public ledger, the blockchain, every transaction is listed with the address of the sender and receiving party. It’s an invention that is heralded for its transparency.
So when it was rumored that the seized Silk Road bitcoins were on the move, it was right there in the blockchain for us to confirm. Which, in fact, told us nothing. Bitcoin’s anonymized addresses meant that no one could tell if the coins had just been sold off in a secret auction or moved to a different wallet or if someone had illegitimately gained access to the wallet and transferred the coins away. Phone calls to several government press offices later left us waiting for a press release to confirm our suspicion that the seized Silk Road had been moved for auction.
During that time though, the effects of that speculation started to hit the bitcoin market. Prices started to fall and then fall faster as the news spread. The price fell as low as $565 after it had started the day around $628. When the market “closed” according to Coindesk, the price had dropped 7.34 percent.
Clearly the market does not react well to the U.S. government getting involved with things, or maybe it was just everyone cashing out their bitcoin so they could have $200,000 on hand to even be able to bid. (That second option is admittedly less likely). Now we’ll just have to wait and see how the auction on June 27 affects the market.
The market this week
Bitcoin’s price had been doing so well, too. The market was generally trending downhill, but not in a worrisome way until the Silk Road sell-off announcement. The price fell as low as $568.87, but has since rebounded once more to around $586 at 10:10am PST.
For background on why we’re using Coindesk’s Bitcoin Price Index, see the note at the bottom of the post.
In other news we covered this week:
- Expedia announced it will start accepting bitcoin payments — a smart move that might appeal to travelers dealing with foreign currencies. The question remains though: who is actually buying with bitcoin?
- Ripple has its first gateway into Latin America with the launch of AstroPay spin-off, Ripple LatAm.
Here are some of the best reads from around the web this week:
- Bloomberg took the first step with adding the currency to its terminals, but now Google and Yahoo are showing the price of bitcoin in their finance networks.
- Marshall Sella of GQ Magazine joins on the bitcoin bandwagon only to find himself scratching his head as to what to buy with it and visiting Charlie Shrem on house arrest.
- Argentina has been idealized as the perfect place for bitcoin to unleash its transformative powers. But as The Economist points out, low digital literacy and the government’s recent guidance discouraging cryptocurrency use does not bode well for mass adoption.
- A 15-year-old took his $1,000 Easter present from his grandmother, invested in bitcoin and then sold for $100,000 — the seed money for his new startup.
Bitcoin in 2014
The history of bitcoin’s price
A note on our data: We use CoinDesk’s Bitcoin Price Index to obtain both a historical and current reflection of the Bitcoin market. The BPI is an average of the three Bitcoin exchanges which meet their criteria: Bitstamp, BTC-e and Bitfinex. To see the criteria for inclusion or for price updates by the minute, visit CoinDesk. Since the market never closes, the “closing price” as noted in the graphics is based on end of day Greenwich Mean Time (GMT) or British Summer Time (BST).
Photo from Pond5/artist3d