The U.S. government has become a major player in the world of cryptocurrency, particularly Bitcoin (BTC). Through seizures related to criminal activities, the government has acquired approximately 200,000 coins, which are worth around $5 billion. These digital assets have been confiscated from cybercriminals and darknet markets and are securely stored offline in encrypted hardware wallets controlled by various federal agencies, including the Justice Department and the Internal Revenue Service (IRS).
The Impact of the U.S. Government’s Bitcoin Holdings
The fate of the U.S. government’s Bitcoin holdings has piqued the interest of crypto traders. Any decision to sell these assets could potentially have an impact on prices and create ripples throughout the trillion-dollar digital asset market. However, it is important to note that the government’s approach is not driven by market speculation or timing. The accumulation of BTC is a result of the lengthy legal process involved in confiscating and managing these assets.
“The government does not actively trade or time the market. Instead, their actions are dictated by the timing of the legal process,” said Jarod Koopman, the executive director of the IRS’s cyber and forensics services section.
The government’s Bitcoin holdings continue to grow due to recent seizures, and even after selling a portion of them, the remaining holdings are valued at over $5 billion. It is likely that the total stash is even larger. However, the process from the initial seizure to the final liquidation of these assets can take several years.
The Value Appreciation and Seizures
The delay in the liquidation process has sometimes worked in the government’s favor, as the value of Bitcoin has significantly appreciated over time. For example, when the cryptocurrency exchange Bitfinex was hacked in 2016, Bitcoin was trading around $600. By the time the individuals responsible for the hack were arrested in 2022, and the Justice Department announced its largest-ever financial seizure of about 95,000 BTC, the token’s value had soared to $44,000 (now around $27,000).
In addition to seizures resulting from hacks, the U.S. government has taken control of assets from the collapse of the FTX exchange. While these assets were not seized, the government did gain control of hundreds of millions of dollars, including cash and shares of brokerage firm Robinhood Markets. Robinhood later repurchased the seized shares from the U.S. Marshals Service. The crypto assets held by FTX are part of its bankruptcy estate and are expected to be used to address the $8 billion shortfall in customer funds or to relaunch the exchange.
The Seizure Process and Liquidation
It’s important to note that when a government agency seizes a crypto asset, it doesn’t immediately become the owner. Only after a court issues a final forfeiture order does the government take ownership and transfer the tokens to the U.S. Marshals Service, the agency responsible for liquidating seized assets. During the legal process, the government holds the Bitcoin as evidence or proceeds of the crime.
“Since the shutdown of the Silk Road marketplace in 2013, the Justice Department has stored seized BTC in hardware wallets,” said an anonymous source.
The U.S. Marshals Service has adapted its liquidation process to align with the evolving crypto industry. Initially, the agency conducted auctions to sell cryptocurrencies directly to interested buyers. Venture capitalist Tim Draper famously acquired over 30,000 bitcoins through government auctions in 2014. However, in January 2021, the Marshals Service decided to sell some of its seized digital currencies through crypto exchanges. To prevent adverse market impacts, the agency now sells the assets in multiple batches over an extended period.
“The agency’s goal is to dispose of assets in a timely manner at fair market value,” according to a spokesperson for the Marshals Service.
The proceeds from these sales often go towards reimbursing victims or covering expenses related to investigating sophisticated crimes and acquiring necessary resources like crypto-tracing software.
