Bitcoin, world's most popular digital currency, had a roller coaster ride today after the federal government shut down the Silk Road, an online marketplace where millions of bitcoins were swapped for drugs and black market products over the past two years.

As news of the Silk Road shutdown spread, bitcoin values took a tumble, initially dropping by about 20 percent, or close to $500 million by mid-morning, Pacific time. But values soon crawled back. On the Bitstamp exchange, for example, bitcoins dropped from about $125 to $90, before climbing back to $115 at midday. On the slightly inflated Mt. Gox exchange, values went from $140 to 109, before jumping back to $128.

In addition to taking down the Silk Road, The Federal Bureau of Investigation arrested Ross William Ulbricht, 29, the San Francisco man who allegedly ran the site under the alias "Dread Pirate Roberts." He's facing drug trafficking, money laundering, and hacking charges. In in an affidavit filed in the case, the FBI specifically addressed Bitcoin, saying that although the digital currency isn't just for the black market, it can be used for nefarious purposes.

"Bitcoins are not illegal in and of themselves and have known legitimate uses," wrote FBI Special Agent Christopher Tarbell. "However, bitcoins are also known to be used with cybercriminals for money-laundering purposes, given the ease with which they can be used to move money anonymously."

There are about 11.7 million bitcoins in circulation, with another 25 created every 10 minutes. Today, you can buy groceries using bitcoins. Or a computer. Or a pint of beer. But after it was launched two-and-a-half years ago, the Silk Road quickly became one of the fledgling digital currency's most popular marketplaces.

According to the court documents released in connection with the takedown, the Silk Road handled BTC 9.5 million in transactions over its two-year life. The feds peg that at $1.2 billion, but that estimate prices bitcoins at $126 each, which was the value as of yesterday. For most of the life of Silk Road, they traded for much less than that.

With the marketplace shut down, some drug sellers may be moving to liquidate their bitcoins, says Dan Held, the founder of Zero Block, a bitcoin market information service. But most of the market movement today is probably "a psychological thing," as a large bitcoin marketplace has shuttered.

Earlier this year, federal agents shut down another digital currency system, Liberty Reserve, claiming that it was a hub for cyber-crime. But, according to the Silk Road documents, the Federal Bureau of Investigation seems to be taking a different approach to bitcoin.

The Silk Road shutdown won't have any significant effect on bitcoin's long-term value, says Patrick Muck, the lawyer for the nonprofit Bitcoin Foundation – a group chartered with the currency's advocacy and software development. "Over time the value of bitcoin will be determined by its useful purposes," he says. "Day to day price fluctuations based on events in the news are not really an effective or accurate measure of the value of the system."