$118M Bitcoin auction sparks minimal concerns in crypto community

The United States government has announced its intention to auction nearly $118 million worth of Bitcoin (BTC) seized during the Silk Road case. Market commentators suggest this sale should not be a cause for concern, citing its relatively small impact compared to recent crypto market activities.

A forfeiture notice dated January 10, which gained attention on social media on January 24, revealed the government’s plan to dispose of approximately 2,934 BTC. This action follows the sentencing of Ryan Farace, a Silk Road Xanax dealer, and his father, Joseph Farace, who were convicted of money laundering conspiracy on January 8.

Market confidence prevails

Despite initial worries about a potential large-scale “dump” of Bitcoin, many experts believe that the government’s sale will have minimal impact on the cryptocurrency market. Steven Lubka, Managing Director at Bitcoin exchange Swan Bitcoin, compared the government’s plans to the recent outflows from the Grayscale Bitcoin Trust (GBTC) and stated, “Peanuts, we have been eating GBTC sales 4x this for breakfast.”

The GBTC has sold 106,575 BTC worth $4.2 billion since it transitioned into a spot Bitcoin exchange-traded fund on January 11. The latest outflow from GBTC occurred on January 24, when 10,871 BTC were sold. This substantial market activity demonstrates investors’ resilience to handle larger transactions.

U.S. Government’s holdings and upcoming auctions

The U.S. government’s planned sale represents only 1.5% of its total Bitcoin holdings. Data from crypto firm 21.co indicates that the government holds an estimated 194,188 BTC, approximately $7.7 billion. This, however, is still less than 1% of Bitcoin’s overall circulating supply.

The government’s Bitcoin holdings stem from three separate seizures:

• 94,643 BTC seized in January 2022 from the 2016 Bitfinex hack.
• 69,369 BTC seized in November 2020 from the Silk Road case.
• 51,326 BTC seized from Silk Road hacker James Zhong. Approximately 41,000 BTC was scheduled for sale through four auctions throughout 2023.

The U.S. government’s history of auctioning Bitcoin dates back to 2014 when venture capitalist Tim Draper famously acquired nearly 30,000 BTC in an auction. The government has recently opted to sell seized cryptocurrencies on exchanges rather than through traditional auctions. The most recent known sale occurred in March 2023, when 9,118 BTC were sold.

Market analysts and experts anticipate that the planned government auction will have a limited impact on the overall stability of the cryptocurrency market. While the sale represents a substantial sum, it is relatively small compared to recent market activities, and its effects are expected to be absorbed by the resilient crypto ecosystem.