The US government has become one of the largest holders of Bitcoin (BTC)acquiring approximately 200,000 coins (worth approximately $5 billion) through seizures related to criminal activity.
The digital assets were seized from cybercriminals and dark web marketplaces and are stored securely offline in encrypted hardware wallets controlled by various federal agencies, including the Department of Justice and the Internal Revenue Service (IRS ).
The fate of the US government’s Bitcoin holdings has sparked curiosity among crypto traders.
Any decision to sell these assets could affect prices and send ripples throughout the trillion-dollar digital asset market.
However, the government’s approach is not driven by market speculation or timing.
Instead, the accumulation of BTC is a byproduct of the lengthy legal process involved in confiscating and managing these assets.
Jarod Koopman, the executive director of the IRS Cyber and Forensic Services Section, he told the Wall Street Journal that the government does not actively trade or time the market.
Instead, their actions are dictated by the timing of the legal process.
Recent seizures alone have added more than 200,000 bitcoins to the government’s coffers, and even after selling some of it, the remaining holdings are valued at more than $5 billion. The total storage is likely to be even larger.
The government liquidation process can take years
The process from the initial seizure to the final settlement of these assets can take several years.
In some cases, this delay has worked in the government’s favor, as the value of Bitcoin has appreciated significantly over time.
For example, when cryptocurrency exchange Bitfinex was hacked in 2016, bitcoin was trading around $600.
By the time those responsible for the hack were arrested in 2022 and the Department of Justice announced its largest financial seizure of around 95,000 BTC, the value of the token had skyrocketed to $44,000. Today, it’s around $27,000.
While the collapse of the FTX exchange did not result in any seizures, the US government took control of hundreds of millions of dollars in assets, including cash and shares of brokerage firm Robinhood Markets.
Robinhood bought back the shares seized from the US Marshals Service in August.
The crypto assets held by FTX are part of its bankrupt estate, and the funds are expected to be used eventually to address the $8 billion shortfall in client funds or to relaunch the exchange.
It is important to note that when a government agency seizes a crypto asset, it does not immediately become the owner.
Only after a court issues a final forfeiture order does the government take ownership and transfer the tokens to the US Marshals Service, the agency responsible for liquidating seized property.
During the legal process, the government holds bitcoin as evidence or proceeds of crime.
Since the Silk Road marketplace was shut down in 2013, the Department of Justice has stored seized BTC in hardware wallets.
Notable cases include the seizure of 69,000 coins from Silk Road founder Ross Ulbricht and 50,676 coins from a Georgia man who pleaded guilty to stealing chips.
The US Marshals Service has adapted its settlement process to align with the evolving crypto industry.
Initially, the agency held auctions to sell cryptocurrencies directly to interested buyers.
Venture capitalist Tim Draper acquired more than 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 avoid adverse market impacts, the agency is now selling assets in multiple batches over an extended period.
One such sale occurred in March when the government sold 9,861 bitcoins through Coinbase.
The Marshals Service confirmed the sale, while Coinbase declined to comment.
The agency’s goal is to dispose of assets in a timely manner at fair market value.
Proceeds from these sales are often used to reimburse victims or cover expenses related to investigating sophisticated crimes and acquiring the necessary resources such as cryptocurrency tracking software.