In October 2013, the Federal Bureau of Investigation (FBI) arrested Ross William Ulbricht, the alleged founder of the online black market site Silk Road, on charges of alleged murder for hire and drug trafficking violations. According to a federal complaint, Silk Road facilitated drug trafficking, secret deals, forgeries, computer hacking and allegedly even hit men, using Bitcoins.
The FBI seized 29,655 Bitcoins from the website. This lead to a significant dip in the price of Bitcoins which lasted for about three days before it began a surprising recovery. The government says that it later seized another 144,336 Bitcoins from Ulbricht’s computers. Ulbricht has sued requesting the return of the 144,336, but the case is still pending in the federal court of New York. This according to federal prosecutors is the largest such e-currency case ever!
Like most of the goods seized by U.S. authorities, Bitcoins also ultimately ended up in the hands of the U.S. Marshals. They will either be auctioned or be repurposed for government use. The Marshals are trained to deal with unloading of complex financial instruments along with rare assets that are forfeited by criminals.
The Bitcoin’s value in October 2013 was around $140, after the FBI seizure. This meant the total value of the seized Bitcoins from the website to be around $4.1 million. Bitcoin’s value as of January 2014 is about $900, which brings the value of 29,655 Bitcoins to a whopping $28 million. A large amount to the common Joe but is nothing to bat an eye at for the USG who throw around billions like a drunken sailor. (or dare I say Pirate? ) The additional 144,336 Bitcoins amount to almost $130 million. That being said, now the question is: what to do with those seized Bitcoins?
The government could either sell these unclaimed Bitcoins on the market or directly to an individual buyer. But, in any case, such heavy selling of Bitcoins would impact the Bitcoin price! Whether the sale is auction, private buyer or other, the additional liquidity will relieve buy/sell pressure in the market and at least in the very short term have some minor impact on the price. The average volume of Bitcoins in January 2014 on Mt.Gox, the Tokyo based largest Bitcoin exchange, was around 8000.
Chris Dixon, a partner with the famous Silicon Valley venture capital firm Andressen Horowitz, believes that soon the Bitcoins will become the primary means of internet trade and this would increase their price astronomically. He believes one Bitcoin can actually be worth $100,000 sometime in the future. If that were to happen, the US government would profit $3 billion from the seizure.
If the government would wait until further price rise, or if it would find means like dollar cost averaging to sell these Bitcoins gradually, would be known only in the coming months or even years as the government is slow to move on these things.