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Did NSA cyberspying revelations cause Bitcoin to crash?

By Michael Mayday , Jun 13, 2013 09:24 AM EDT
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Last week's revelations on the cyber espionage abilities of the National Security Agency (NSA) and the Federal Bureau of Investigation (FBI) did more than just raise the ire of privacy advocates. It also could have shaken the nerves of Bitcoin investors.

So much so that the when the NSA and FBI cybersyping tools hit headlines on Friday, the value of the Bitcoin plummeted from $118 on June 7 to $89 on June 9, according to TechCrunch. Currently, the virtual currency sits at $109.

The drop in value during one of the largest espionage stories in decades is a curious coincidence. After all, one of Bitcoin's founding principals - and wide attractions - was complete and total anonymity for its users. That guarantee of anonymity, however, has been called into question by the U.S. government's PRISM program.

That loss of privacy isn't good for a currency which is largely influenced by sentiment and confidence it the virtual currency's abilities. And, as TechCrunch notes, the does get hit by occasional attacks, and it is affected by news of privacy. The idea that Bitcoin users can retain some level of anonymity, but can still be tracked by their associated metadata fingerprints, could have chased some users away.

The theory was first posed by CoinDesk, a digital currency analyisis website, on Tuesday, though the site was also careful to say the drop in Bitcoin value could be attributed to something else entirely.

"No matter which way you view the price drop, bitcoin is a something that is heavily affected by sentiment," CoinDesk's Daniel Cawrey said in a post. "The fact that it is decentralized does not make it immune to the government's actions. Decentralization doesn't mean it is disconnected from all of the other complex systems that make up the economic system. Governments are huge influencers in the economy, and will continue to be into the future."

In mid-May, Mt. Gox, the largest Bitcoin exchange in the world, required users to provide some form of identification in order to transfer Bitcoins into physical currency. That decision came on the heels of the U.S. government filing a lawsuit against a Bitcoin payment process, Dwolla. While Mt. Gox's decision upset some of its investors and advocates, it's perceived to help bring the currency into a more legal, and legitimate, light.

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