How The US Government Handles Its Massive Stash Of Bitcoins

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How The US Government Handles Its Massive Stash Of Bitcoins

The federal government’s connection with bitcoin has garnered countless headlines over the years, which is not unexpected given that the United States government is one of the major holders of bitcoins.

The bitcoins are normally auctioned off in public by the United States Marshals Service, a law enforcement body inside the Department of Justice. At least $1 billion in digital currency, and potentially much more, have been seized by US authorities. As a consequence, the United States Marshals Service, which is in charge of selling seized bitcoin, has emerged as a prominent participant in the cryptocurrency market. (Also see: US Marshals to Auction Off Seized Bitcoins.)

However, nothing is known regarding the government’s approach to bitcoins. A new Fortune story looks into the mechanics of the government’s management of its cryptocurrency stockpile. Here are two takeaways from the Fortune article.

Crypto Price Volatility Is Messing Up The Government’s Plans

Several agencies within the United States government frequently take expensive artifacts and precious metals and auction them off. However, none of the confiscated assets had the price volatility of cryptocurrencies. This has resulted in fresh circumstances and questions.

A cleverly timed sale of bitcoin, for example, which has increased dramatically in price, would have paid dividends for a government agency’s budget. However, the US government has been chastised for selling bitcoins at such a low price. (Also see: Which Governments Are Storing Bitcoin?)

Between June 2014 and November 2015, the average selling price for bitcoins at Marshals Service auctions was $379 per token. During the auctions, venture entrepreneur Tim Draper (shown below) struck gold by acquiring 30,000 coins for an estimated $18.5 million. His investment is worth $300 million at current values. That is not a terrible return for a 2.5-year investment. (Also see: More Billionaires Buying Cryptocurrencies.)

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Last year, the US government sought to emulate Draper’s technique. When bitcoin’s price approached $20,000 in December 2017, government entities sought to sell 513 coins. By the time they obtained the required approvals in mid-January, the price of a single bitcoin had dropped over 50%.

One of the most intriguing bitcoin incidents came lately, when local officials in Manhattan cracked an abduction and burglary case employing ether, the cryptocurrency used by Ethereum, in January 2018. The thief cleverly transferred his ethereum into bitcoin, which has subsequently increased in value. The authorities are at a loss as to who should benefit from the sale of the riches.

How Many Bitcoins Is the U.S.Government Holding?

The website, which tracks Justice Department administrative, civil, and criminal forfeiture cases, is usually the best location to find out how many bitcoins the government has. However, there is a gap between the publishing date of an internet report and the date of seizure, according to the Fortune study. Reports are likewise not stored online, nor are physical copies created. Bitcoin addresses that connect wallets to their owners are also unavailable.

Several authorities have confiscated bitcoin throughout the years, further complicating the situation. The lack of traceability for the government’s bitcoin stockpile has major consequences for the whole bitcoin ecosystem since it makes determining and establishing ownership of the cryptocurrency, which is built on transparency principles, impossible.

For example, Fortune discovered that 322 bitcoins were taken from a marijuana dealer in Texas in 2014, but no record of their sale exists. This effectively indicates that 322 bitcoins in the Bitcoin network may belong to addresses that have not transacted in a long time. They may eventually be phased out of circulation.

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Arvind Narayanan, a Princeton scholar, did research on burned and unspendable coins earlier this year. “We’ve all heard tales of cryptocurrency owners misplacing private keys, and it’s hard to know how many coins have been lost this way,” he added.

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is very dangerous and speculative, and this article is not a suggestion by Investopedia or the author to do so. Because every person’s circumstance is different, a knowledgeable specialist should always be contacted before making any financial choices. Investopedia makes no guarantees or warranties about the accuracy or timeliness of the information provided on this site. The author holds a minor quantity of bitcoin as of the day this article was published.

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