The U.S. government boasts one of the largest collections of bitcoin (BTC) worldwide, amassing a significant cache of this premier cryptocurrency through a series of confiscations linked to criminal activities.
Data sourced from Glassnode reveals that the U.S. holds approximately 205,500 bitcoins, with a valuation of approximately $5.5 billion. This figure is especially noteworthy when considering that the overall supply of bitcoin is limited to 21 million coins.
In more precise terms, the government’s Bitcoin reserves make up roughly 1% of the total BTC currently in circulation. This raises legitimate concerns regarding the potential impact on the cryptocurrency’s price, particularly if the U.S. government opts to divest its holdings all at once.
How Did the U.S. Government Amass $5 Billion in BTC?
The accumulation of bitcoin by the U.S. government has primarily occurred through seizures tied to criminal investigations. Bitcoin’s decentralized nature made it an attractive choice for criminals, especially during its early years, for activities such as money laundering, drug trafficking, and ransomware attacks.
In their efforts to combat these illicit activities, the U.S. government has been diligently tracing and pursuing these criminals. This strategy has enabled the country to dismantle criminal networks and secure substantial amounts of BTC without needing to enter the open market to acquire it.
Over time, the U.S. government has seized a substantial quantity of bitcoin from various criminal cases. Notably, three major seizures account for the majority of the government’s bitcoin holdings.
The first significant seizure occurred in 2020 when the U.S. Attorney’s Office in the Northern District of California confiscated 69,370 bitcoins from an individual known as “Individual X,” who had pilfered the assets from the notorious Silk Road darknet marketplace.
Similarly, in February 2022, the Department of Justice seized 94,636 stolen bitcoins from the Bitfinex cryptocurrency exchange. Ilya Lichtenstein and Heather Morgan, the culprits responsible for the hack, were also apprehended and charged with conspiracy to commit money laundering.
Another substantial seizure took place in November 2022 when the U.S. Attorney’s Office in the Southern District of New York announced the confiscation of $3.3 billion in cryptocurrency from the fraudster James Zhong, who had illicitly obtained over 50,000 bitcoins from the Silk Road dark web marketplace.
Does the U.S. Intend to Sell Its BTC Holdings?
Traditionally, the U.S. government liquidates its seized bitcoins through the U.S. Marshals Service by means of public auctions. This method allows the government to responsibly and efficiently divest its bitcoin holdings without causing significant market disruptions.
For context, between 2014 and 2023, the U.S. has auctioned off $366 million worth of BTC in 11 separate auctions, as per data compiled by software engineer and researcher Jameson Lopp. In the most recent instance, the U.S. sold over 9,800 BTC linked to the Silk Road in late March.
Despite a track record of selling confiscated bitcoins, the U.S. government has refrained from significant sales since April. There has been speculation that the government may be waiting for more favorable prices in hopes of greater financial gains.
Nevertheless, it’s vital to acknowledge that the government’s decision to liquidate its BTC holdings would undeniably influence the cryptocurrency market. In a recent Reddit post, a user suggested the possibility of the U.S. selling more than 40,000 of its BTC stash at once, expressing concerns about potential market manipulation. They stated:
“Initially, the thought was that the US government would be smart enough to spread this out over the year, having almost no effect on market prices, but now it seems like they have not taken the SEC classes about market manipulation.”
“So if they choose this extreme route [selling a large quantity at once], there will likely be a significant impact on prices,” the user added. “Let’s hope the U.S. government is well-versed in their own laws and perhaps considers postponing these sales to a later date.”