The US government has seized approximately 200,000 BTC from cybercriminals, giving it one of the largest Bitcoin reserves in the world. Surprisingly, the government seems to be in no hurry to sell this significant amount and has inadvertently taken on the role of a crypto investor.
The federal government owns approximately $5.4 billion worth of Bitcoin. A liquidation of this significant inventory will undoubtedly impact the market price and cause selling pressure.
Delayed sales
On October 15, the Wall Street Journal took an in-depth look at the government’s Bitcoin stocks. The newspaper has noted that the United States is notoriously slow to convert its Bitcoin supply into dollars. This large pile of Bitcoin appears to be the result of a lengthy legal process rather than strategic planning.
Jarod Koopman, the executive director of the IRS Cyber and Forensic Services Division, stated: “We do not actively trade the market. Our timing is mainly determined by our process.” Bitcoin is stored securely offline in hardware wallets managed by government agencies such as the Department of Justice and the Internal Revenue Service (IRS).
Furthermore, it can take years from the moment of seizure to liquidation, due to lengthy investigations and legal proceedings. This has sometimes allowed the government to profit from rising Bitcoin prices. Once cases are concluded, the Marshals Service liquidates the Bitcoin and distributes the proceeds to victims or uses them to cover the costs of the investigation.
Initially, these liquidations were conducted through auctions, but now exchanges such as Coinbase are used. The Marshals Service distributes sales to minimize any potential impact on the market. Nicolas Christin, professor of computer science at Carnegie Mellon University, noted: “The government is typically slow to sell these assets due to extensive due diligence, case complexity and bureaucratic processes.”
During a recent sale in March, the government sold 9,861 BTC through Coinbase, with a government spokesperson stating that their goal is to sell assets in a timely manner at a fair market value. The government started moving Bitcoin in July.
America’s Bitcoin supply
According to 21.co, the parent company of 21shares, the US government has seized at least 215,000 BTC since 2020. The company has recorded three separate seizures since 2020 on a Dune Analytics page.
The first seizure took place in November 2020 when Silk Road 69,369 BTC was confiscated. In January 2022, the total seizure resulting from a Bitfinex hack was 94,643 BTC, while James Zhong’s March 2022 seizure amounted to 51,326 BTC.
This suggests that the total number of BTC seized is likely significantly greater than the originally reported 194,188 BTC that 21.co identified and tracked.
Overall, it seems unlikely that this entire supply of BTC will ever be liquidated at the same time, as this could lead to significant market disruption.
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