The US government is a holder of 200,000 bitcoins, but "value" is not the main focus.

A government holding over 200,000 bitcoins takes a neutral stance on its price fluctuations, as most of them were seized from criminal activities.

How Did the U.S. Government Obtain 200,000 Bitcoins?

According to The Wall Street Journal, the U.S. government is currently one of the largest holders of Bitcoins globally. However, unlike most investors, the U.S. government is not particularly concerned about the fluctuation in the value of the cryptocurrencies it holds. Most of these Bitcoins, totaling around 200,000, were seized from online criminal activities and dark web markets. Since the shutdown of the dark web Silk Road in 2013, 69,000 Bitcoins once owned by the Silk Road founder and 50,676 Bitcoins from a Georgia man have been confiscated.

These Bitcoins are stored in special hardware wallets controlled by multiple agencies such as the Department of Justice and the Internal Revenue Service. The significant amount of Bitcoins held by the government is closely watched by traders in the crypto market, as any selling action could trigger significant price fluctuations in the market.

According to data from the cryptocurrency company 21.co, the government has seized over 200,000 Bitcoins in its recent three operations. Even after selling about 20,000 Bitcoins, the value of the remaining holdings still exceeds $5 billion.

Reasons for Slow Liquidation of Bitcoins

The government's selling speed is relatively slow, mainly due to legal procedures. For example, in 2016, when the Bitfinex exchange was attacked, the price of Bitcoin was only $600. However, by the time the main suspect was arrested in 2022, the value of the 95,000 seized Bitcoins had surged to $44,000.

IRS officials stated, "We do not participate in the market; we basically operate on the timeline of our processes."

A professor at Carnegie Mellon University pointed out that due to the complexities and the need for due diligence, the government typically takes a longer time to handle these assets.

Method of Liquidation: Shifted to Selling on Exchanges

While in the past, U.S. courts sold Bitcoins through auctions, they have now shifted to selling on exchanges. Renowned Bitcoin advocate Tim Draper, for example, purchased over 30,000 Bitcoins from the government in two auctions in 2014.

In January 2021, a U.S. court decided for the first time to liquidate its seized digital currencies on cryptocurrency exchanges. Historically, it has often sold cryptocurrency assets in multiple sales rather than all at once to avoid adverse effects on the market from large sell orders. In the current practice, the institution takes extra measures to ensure the market is not adversely impacted, such as liquidating cryptocurrencies over a longer period multiple times. One such liquidation occurred in March, where the government sold 9,861 Bitcoins through Coinbase.

The U.S. court emphasized that their goal is to "dispose of assets in a timely manner at fair market value."

IRS officials concluded, "For us, adapting quickly is challenging. The changes that the cryptocurrency industry has gone through in less than 10 years may take the financial industry 100 years to achieve."