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Yes, eight months after the FBI shut down the site – which gained notoriety for letting customers use Bitcoin to purchase illegal drugs – Silk Road is again causing headaches for the Bitcoin community.
But what has slammed the Bitcoin price is not a revival of the notorious site, but an announcement yesterday (Thursday) by the U.S. Marshals Service that it would sell 29,656 of the bitcoins it seized from Silk Road in an auction on June 27.
At current prices, those bitcoins are worth about $17.6 million.
Concern over the effect such a large infusion of bitcoins could have on the market triggered a bout of selling, sending the Bitcoin price from $653.71 on Wednesday to as low as $581.82 on Thursday.
The Bitcoin price rebounded past $600 briefly today (Friday), but within hours slid back below $590.
The sudden drop harked back to last October, when news that the U.S. government had shut down Silk Road sent Bitcoin prices down about 20%. That time, however, Bitcoin prices recovered within a couple of days.
One reason the June 27 auction is more worrisome is that it may be just the first of many.
The U.S. government also seized 144,342 bitcoins from Ross Ulbricht, known online as Dread Pirate Roberts. Ulbricht was the founder and chief administrator of Silk Road.
That stash, currently worth about $85.5 million, represents nearly 1.1% of the 12.9 million bitcoins in existence. If the government unloads that batch in one or more auctions, the impact on the Bitcoin markets, at least in the short term, could be extremely disruptive.
At least one member of the Bitcoin community sees a silver lining in the U.S. Marshals Service Bitcoin auction, however.
"The fact that they're going to liquidate them instead of destroy them gives Bitcoin some legitimacy," Gavin Andresen, the chief scientist of the Bitcoin Foundation, told Wired. "They see them as something of value."
Still, a Bitcoin auction carries the risk that the offers could go lower than the current market price.