Ross Ulbricht, 29, was arrested today by the FBI, as the head of the Silk Road. The website was an anonymous Internet marketplace known for illegal buying of drugs and phony identification documents. Silk Road was active from January 2011 to September 2013. Its users and transactions should have been untraceable and for this the payment on the website was done with Bitcoins. The digital currency is anonymous and can be easily turned into real money.

When the FBI held Ross they also have seized 26,000 Bitcoins that worth around $3.2 million. Right after the announcement the price of this currency dropped 20% , from 136$ to 110$.

But why did Bitcoin dropped? Silk Road was one big website that used Bitcoins, as payment, so the clients had to buy the digital currency. Buying it meant demand so the price was held at an equilibrium price. Because the site is now gone, the demand dropped instantly so the price plunged. But it wasn’t enough to keep the price too low. It climbed back to 127.50$ at this point.

Other websites that are using Bitcoins for payment: BitcoinShop, ThinkPenguin Inc, bitvapors, Private Internet Access, BitRoad, SomethingGeeky.

If you remember our last analysis, Bitcoin (BTCUSD) Consolidated in a Symmetrical Triangle? We were then saying that the price was consolidating in a triangle and a breakout out of it could tell us more about the direction. It broke under the lower line of the pattern, but the price touched the price’s target only several hours ago after the Silk Road went offline.

Chart: BTCUSD, H4

The price might oscillate now between 110$ and 140$ for the next period. Taking into consideration the price action we should keep an eye for either a drop under the current support level or a daily close above 150$ per Bitcoin to have a better idea on the future direction.