$27 million and counting: US govt sitting on bitcoin goldmine

Written by Reuters | New York | Updated: Jan 20 2014, 14:40pm hrs
BitcoinsBitcoins had belonged to Silk Road, an anonymous online black market that authorities say was a conduit for purchases of drugs and computer hacking services.
US prosecutors in Manhattan are sitting on a multimillion-dollar bitcoin gold mine. And it could get much bigger.

Federal authorities hauled in 29,655 units of the digital currency worth $27 million at current exchange rates through an official forfeiture by Bitcoin this week.

The bitcoins had belonged to Silk Road, an anonymous online black market that authorities say was a conduit for purchases of drugs and computer hacking services - even a place where assassins may have advertised. It was shuttered after an FBI raid in September, when agents took control of its server and arrested the man they say was its founder in San Francisco.

No one stepped forward to claim these bitcoins, which were found in electronic wallets used to store the digital currency. An additional 144,336 bitcoins, worth more than $128 million today, were also discovered, but the governments claim on them is being disputed by Ross William Ulbricht, 29, who US authorities say was the founder and main operator of Silk Road. They had been stashed on his laptop.

It all puts authorities in an unusual position, given their concerns about the way in which bitcoins and other digital currencies are used by criminals to circumvent regulations intended to prevent money laundering. By trading in bitcoins, the government could give the currency some legitimacy.

Bitcoin is essentially software code that defines units of value, which users can move back and forth among themselves. Unlike other virtual money transmitters, its value isnt pegged to a hard currency like the dollar or the euro; it is determined by the demand for bitcoins.

The US Marshals Service, which is in charge of liquidating such seized assets, will have to decide whether to sell the units on a Bitcoin exchange or find a private buyer, perhaps through an auction.

A spokeswoman for Preet Bharara, the US Attorney for New Yorks Southern District, said on Friday that the government is still trying to decide what to do with the forfeited bitcoins.

The timing of any sale could make a big difference in the amount the government could realize.

Bitcoins value has fluctuated wildly over the past six months. When Silk Road was seized, the bitcoins found on the server were worth $3.6 million, far below their current $27 million value. Friday's exchange rate was about $900 per bitcoin, according to the Tokyo-based Bitcoin exchange MtGox.

It is unclear whether a large sale of bitcoins by the government could drive down the price. Friday's volume on MtGox, which is the largest Bitcoin exchange, was 8,656 units.

If its worth $27 million now, is that a high part of the market A low part of the market Thats one of the decisions theyre going to have to make, said Louis Rulli, a professor at the University of Pennsylvania Law School. It would seem to me that they would probably convert those bitcoins into cash relatively quickly.

Barry Silbert, the founder of one of the first investment funds that lets retail investors gain exposure to Bitcoin, declined to offer an opinion on what the government should do with its stash or how a sale would affect the market.

Marco Santori, chairman of the regulatory affairs committee for the Bitcoin Foundation, which is Bitcoins official trade group, said the group did not have an official position on the matter.