The US Marshal’s service is gearing up to unload a digital boatload of bitcoin on June 27, comprising around 30,000 BTC in total, via auction. It’s an event that is also occurring while bitcoin’s price is experiencing a downturn, which depending on what price the various sub-lots of BTC end up going for should prove to have some pretty interesting ramifications for the cryptocurrency.
For Sale: 29,566 Bitcoins, Gently Used
The government’s BTC haul was acquired in October of last year following the raid of the Silk Road, a deep web marketplace that trafficked in guns, drugs, and allegedly murders-for-hire. As the government views bitcoin as an asset and not a currency, the government will treat the bitcoins as such by auctioning them off in ten lots, and utilizing the USD proceeds for their own ends.
The Silk Road cache comprises about 0.23 percent of the entire global bitcoin supply. Not enough to crater the market, but certainly enough to catch a lot of people’s attention.
That is, catch the attention of the kind of people looking to increase their market share of a finite asset. For even though the government lot in total only comprises a small percentage of the entire theoretical float, it’s important to keep in mind that a large chunk of the total BTC supply is out of circulation.
Like the 140,000 BTC that were personally owned by Silk Road leader Ross Ulbricht, which was also seized by the government in the raid. Ulbricht has sued for reclamation of those coins, leaving them for the timebeing in cold storage. Also out of circulation: the 1 million or so BTC owned by Satoshi Nakamoto, the mysterious creator(s) of bitcoin, whose bitcoin have not moved since being mined in 2009 in the dawn of bitcoin’s existence.
Even not factoring in dormant bitcoin, a 29,566 BTC haul is nothing to sneeze at. If bitcoin were gold, of which 165,000 tons have been mined in human history, the US Marshal bitcoin auction would be the equivalent of the one-day sale of 379 tons of the yellow metal, or about 8 percent of the entire gold supply in Fort Knox.
It makes sense that a big bitcoin trader would want to be privy to such a sizable lot at one stable price. Just buying up that many bitcoins piece by piece would start driving the price up. Buying a BTC lot via auction will do the opposite. It will get big players into a giant lot below market value, leaving retail traders holding the bag as the price drops at the influx.
Even With Bitcoin, It's Still Buy Low, Sell High (and Fast)
In an interesting turn of events, the identities of the bitcoin auction participants were accidentally leaked by the US Marshal’s service in an email when some poor schlub forgot to BCC the names of the potential buyers. The names included some a few random investors, a professor and several luminaries of bitcoin trading which included Fred Ehrsam, co-founder of Coinbase, and Barry Silbert of nascent BTC trading platform Second Market.
Ehrsam and Silbert’s interest is the most telling. For though they are supporters of bitcoin, there’s little reason to suspect they want in on cheap bitcoin for any other reason but to eventually flip it. After all, both have access to platforms specifically designed to do exactly that: sell bitcoin quickly.
So what’s the result of this auction, one taking place during a time when bitcoin has shed more than ten percent of its value in a week? The bitcoin price will remain virtually the same or rise if either of both of the following things happen.
One, the buyer(s) of the 10 separate bitcoin lots do not take immediate advantage of the price disparity between their buy-in price and the market price, and go truly long. This is the riskier play, but then again, a vast swath of BTC holders are invested not just financially but ideologically. Holding is a badge of honor, price be damned.
Two, the price should not move too much if the market has already priced the influx of bitcoin onto the market. This is also possible, as the price has already moved downward after rebounding in the early summer.
But make no mistake: the auction participants want to make money, otherwise they wouldn’t be participating. And the average BTC holder/trader would do well to keep in mind that the profit margin is highest for those who have access to platforms to unload the coins quickly, before any kind of resulting market panic takes hold.
The auction will close on June 27, with winner(s) of the various lots notified on June 30.
Note: an earlier edition of the article said the "Silk Road cache comprises about 0.0023 percent of the entire global bitcoin supply." The correct figure is 0.23 percent.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer