When the FBI raided the internet marketplace Silk Road in fall 2013, the agency ended up with a surplus of bitcoin currency worth more than $100 million. The fate of this massive virtual chest of cryptocurrency has been up in the air, but the US Marshals Service announced a plan on Thursday to auction a portion of it off later this month.
According to a statement from the US Marshal’s office, bidding will be held on June 27 for multiple blocks of the currency that will total nearly 30,000 bitcoins, worth approximately $17.4 million.
The funds were confiscated during the Silk Road bust from the illicit drug and criminal activity network’s servers. Bidding will be open on the Marshals Service website at 6AM with a 12-hour time slot. The auction will be made up of nine blocks of 3,000 bitcoins and one block of 2,657 bitcoins.
Once the bids are made and the auction is closed, the US Marshal’s office said it will let the winners know by June 30.
Another 144,342 bitcoins — approximately $84 million and 1.1 percent of the total market — were reportedly moved from the FBI’s e-wallet to the US Marshals's e-wallet and will not form a part of the June auction. This chunk of virtual currency was taken from Silk Road owner Ross William Ulbrecht, more commonly known by his online alter ego “Dread Pirate Roberts,” during the October bust.
Qualifications for June bidders are quite strict, requiring a $200,000 cash collateral and detailed personal information, which is a bit at odds with bitcoin's anonymous reputation. The marshals' office also wants to know whether interested parties have any connection to Ulbrecht who was arrested during the raid and charged with narcotics trafficking conspiracy, computer hacking conspiracy, and money laundering conspiracy.
Mark Williams, a finance professor at Boston University’s School of Management, told VICE News that these “onerous” requirements will limit who will bid for the blocks up for sale. He says at an expected average of about $1.8 million per block, the pool of bidders will be small and the individuals will be wealthy.
'I doubt the US Marshals care one whit about the "validity" of bitcoin or not. It's an asset, their job is to liquidate it.'
“It’s not like stocks and bonds where you have a deep market of buyers and sellers, this is a market where 1,000 people control 50 percent of the coins produced,” he said. “So the US Marshal’s office is screening out many folks that would typically be available.”
After the news of the planned auction hit, bitcoin prices fell nearly 7 percent to $585.56 per bitcoin. But the government will likely still make it out on top, considering the currency’s value is worth six times more than it was when the FBI seized it in October.
“I wouldn’t be surprised if they’re watching the price of bitcoin on the market just like everyone else,” Joshua Dratel, Ulbricht’s lawyer, told Wired while discussing the interesting timing of the auction announcement in relation to bitcoin’s rise in value over the last month.
The currency’s value was back up to $596.73 per bitcoin as of Friday morning, but down from a high point of $665 in recent weeks and the all-time highs of more than $1,000 at the end of last year. According to Williams, this fluctuation further emphasizes bitcoin's vulnerability and the lack of market liquidity in the asset class. He said it will be interesting to follow what kind of market depression occurs when the government dumps Ulbrecht's wallet into the market.
While some see the government's auction as some sort of confirmation of the currency's validity, experts see it as a decision based more on money.
"I doubt the US Marshals care one whit about the 'validity' of bitcoin or not," Mike Hearn, the Bitcoin Foundation's Law and Policy Committee chair, told VICE News. "It's an asset, their job is to liquidate it."
According to Williams, the move shows the government is trying to monetize forfeited assets that might not maintain their value for much longer. He says they could sit on the bitcoin assets and watch the price drop, or sell them and get out now.
“If anything, this shows the US government is not bullish on bitcoins, if they were, why would they sell now?”
Follow Kayla Ruble on Twitter: @RubleKB
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