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It was reported today that the US government shut down the web site Silk Road, where people bought and sold things (allegedly including illegal drugs) using Bitcoins. The operator was arrested, and BTC 26000 was seized. (Source: New York Times).

A few months ago, it was also reported that the US Drug Enforcement Agency seized BTC 11.02 from a person suspected of buying or selling illegal drugs.

Is anything known about what the US government (or any other government) does with seized coins?

Some possibilities:

  • Sell them on an exchange for USD, and turn the proceeds over to the Treasury

  • Sell them at public auction, as is commonly done with other seized property

  • Use them in future sting operations

  • Do not return them to circulation, but hold them indefinitely

  • Destroy them by transferring them to an address with no private key

  • In order to auction/sell them, US govt. will first have to acknowledge that it is worth some money i.e it is a valid currency. Do they do that? – user13107 Jan 24 '14 at 7:02
  • @user13107: See the answer by Tim S and links therein. They are planning to auction them, so they certainly acknowledge that the coins have value. I'm not sure that's the same thing as "being a valid currency". – Nate Eldredge Jan 24 '14 at 13:41
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+50

The bitcoins will be sold, but they haven't said precisely how that will happen. Since there is no bitcoin exchange that is properly legally licensed in the US, they will likely auction them off directly, like seized property.

The bitcoins, if you're interested, are sitting in two very large wallets: one with ~144K bitcoins (~US$117.6M right now) and another with ~30K bitcoins (~US$24M), all siezed from Silk Road.

The above is based on the news sources Fox News, Forbes, and Wired. What follows is my own opinion.

This approach makes sense, since bitcoins aren't inherently illegal (thus only useful in sting operations or to be destroyed, like seized drugs), and aren't US cash (and thus sensible to directly deposit in the Treasury). Like all other valuable property, the best way for the government to liquidate them is at auction.

When this sale happens, the price of bitcoin will likely go down, but will probably be lost in the noise of trading. (Edited. At first I said that it'd be driven down fairly drastically.)

Update (2014-06-13): The smaller chunk of bitcoins, nearly 30K bitcoins (now ~US$18M) seized from Silk Road (including all of the little transactions people have given to it since then) now have an auction page set up on the U.S. Marshals Service website: they'll be sold in blocks of 3,000 bitcoins (less for the final block). The actual bidding will occur on June 27th, the fiat money will be wired by July 1st, and I'd expect the coins to be transferred via Bitcoin transactions shortly after. See Forbes for a news source talking about this.

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    Whether this has any influence at all on the price depends largely on whether the buyer turns around and dumps them on exchanges. If he just holds on to them it wouldn't affect the price at all. – Murch Jan 24 '14 at 1:08
  • Likewise if buyer sells them a few at a time at the exchanges, giving the markets a "rest" of some hours between offers. Only in the case they were sold altogether all of a sudden, the whole ~170K BTC, then the market price would descend a big notch, certainly. – Joe Pineda Jan 24 '14 at 18:07
  • Hm..you're probably right. I've edited my opinion. – Tim S. Jan 24 '14 at 18:54
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Property seized is held until a conviction, then sold at auction. If there is no conviction, property may or may not be returned to the rightful owner.

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    I understand this is the usual procedure for tangible property, but does it also apply to intangible property, financial instruments, etc? Certainly the government wouldn't sell seized currency at auction (that would be silly). How do they handle stocks and bonds? Do they really auction them on the courthouse steps? – Nate Eldredge Oct 3 '13 at 16:43
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    The interesting part will be, if in the end such bitcoins are sold in an auction, how far/below above the exchange's price are the buyers willing to go. The final price for the 2 lots will signal a lot of things about how the buyer sees Bitcoin and its future. – Joe Pineda Jan 24 '14 at 18:09

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