The U.S. government has become a major bitcoin holder, accumulating over 200,000 bitcoins, with a current valuation exceeding $5 billion. These digital assets were primarily confiscated from cybercriminals and illicit operations on darknet platforms.
This sizable collection positions the U.S. among the top bitcoin holders worldwide. Unlike many cryptocurrency enthusiasts who accumulate for speculative profit, the government’s primary reason for accumulating bitcoin is as a consequence of law enforcement actions.
Storage and Management
Reportedly, the majority of this bitcoin is securely stored offline in encrypted hardware wallets, overseen by entities such as the Department of Justice and the IRS. Recognizing the possible ripple effects on the market from large-scale sales, the government exercises prudence when deciding to liquidate these assets, a process often prolonged due to intricate legal protocols.
Historic Seizures
Notable cryptocurrency incidents in recent years have led to significant bitcoin acquisitions, bolstering the government’s holdings. In 2016, the virtual currency exchange Bitfinex was hacked, leading to the theft of 119,754 bitcoin.
The bitcoin was moved to a wallet controlled by Ilya Lichtenstein. Over the years, Lichtenstein and his wife, Heather Morgan, allegedly laundered a portion of these bitcoin. By 2022, when they were arrested in Manhattan, the remaining confiscated bitcoin from the hack was valued around $3.6 billion, with the original value in 2016 being around $600 per bitcoin.
Another significant seizure occurred in late 2020 when the government acquired 69,000 bitcoins linked to the Silk Road darknet marketplace, which were initially owned by its founder, Ross Ulbricht. Additionally, the government retrieved 50,676 bitcoin from a Georgia resident accused of pilfering tokens from Silk Road. These three confiscations alone are responsible for bringing over 200,000 bitcoin under the U.S. government’s authority.
Liquidation Process
Before the government can sell bitcoin, they must obtain an official forfeiture order from a court. The U.S. Marshals Service is in charge of the liquidation. Historically, direct auctions to purchasers were common. However, a shift towards selling segments on cryptocurrency exchanges has been observed, exemplified by a 2021 sale of nearly 10,000 bitcoin on Coinbase. The Marshals Service sells the confiscated bitcoin in multiple batches over time rather than all at once to avoid adversely impacting the market.
Related reading: U.S. Government Moves $300 Million Worth of Bitcoin Related to Silk Road Seizure
The government’s primary objective is to achieve a fair market value without delays, safeguarding against potential price declines. Proceeds often go towards compensating victims of crypto-related crimes or covering investigative expenses.
The U.S. Government as a Major Bitcoin Holder
Since the 2013 shutdown of the Silk Road, the Justice Department has employed offline wallets for bitcoin storage. With cryptocurrency-related crimes evolving in complexity over the past decade, law enforcement continues to refine its strategies for seizing, managing, and liquidating intricate digital assets.
While the U.S. government’s bitcoin arsenal is impressive, there’s no strategic ambition to capitalize on market upticks in the manner of regular investors. Rather, these vast holdings have emerged as byproducts of significant cybercrime interventions.
Extended legalities have inadvertently positioned the U.S. government as a prominent bitcoin custodian. Given the national debt’s current trajectory – exceeding 33.5 trillion and with projections by the Congressional Budget Office estimating a leap to $45.2 trillion by 2033 – it might be prudent for the government to evaluate the potential financial advantages of its unintended bitcoin reserves in light of ongoing monetary policies.
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