What Happens To Bitcoin Seized By Authorities?

You have probably heard stories about Bitcoin being seized by law enforcement authorities. This usually happens when some criminal enterprise is brought down. It could be an illicit online marketplace like the Silk Road or it could be efforts to launder fiat currency by using crypto. The big question is where does all that Bitcoin go when it is seized by authorities.

Who Seizes Bitcoin?

Before we look at what happens to Bitcoin and other cryptocurrencies that are seized let’s identify the various agencies that are empowered to confiscate Bitcoin.

In 2019 the following agencies of the US government seized Bitcoin:

  • The Drug Enforcement Agency (DEA)
  • The Internal Revenue Service (IRS)
  • The Department of Justice (DOJ)
  • The Federal Bureau of Investigation (FBI)
  • The US Attorney’s Office
  • US Customs and Border Protection

This list only represents agencies of the US. There are similar agencies in other countries. It also does not account for local law enforcement agencies like police and sheriff’s departments. Any government or local agency empowered with enforcing the law can seize your Bitcoin if a criminal activity is suspected.

The Beginning of Bitcoin Confiscation

The efforts of law enforcement to seize Bitcoin can be traced to the downfall of the Darkweb marketplace The Silk Road. This online black market allowed people to purchase drugs, guns, and pornography with cryptocurrency. It even contained ads from hitmen who offered to commit murder for hire. The scheme was operated by Ross William Ulbricht, a man who referred to himself as the Dread Pirate Roberts.

Ulbricht was ultimately brought down by the authorities in 2013. When the Silk Road was closed the FBI seized 144,000 Bitcoin. This made the US government one of the largest holders of Bitcoin. Just two years after the Bitcoin were seized the US government arrested two agents of the US Secret Service. Shaun Bridges and Carl Mark Force stole 1,600 of the Silk Road Bitcoin. Presumably they thought no one would miss such a small number of tokens. That small would have made them rich today.

The Silk Road was just the beginning of the seizures. The owner of another online black market known as AlphaBay was targeted by the US Department of Justice. Alexander Cazes lost more than 1,600 BTC and 8,000 ETH. All of it as well as unidentified amounts of Monero are now in the hands of the US government.

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As you can see, the US government does pretty good at cryptocurrency investing for a country that is constantly trying to throw roadblocks in the way of Bitcoin acceptance. But the big question is what happens to Bitcoin seized by authorities.

Where Does All That Bitcoin Go?

The truth is that very little information is provided about where or how the government disposes of Bitcoin and other cryptocurrency that has been seized by authorities. There have been attempts made by websites like Investopedia to determine where these coins go, but it is still hard to pin down the answer.

It is known that the general method of getting rid of these Bitcoins is through an auction that is conducted by the US Marshals Service. This is the same type of auction that is used to disperse items like automobiles or other valuables that are seized in drug raids. It is clear that the US Government does not want to hold on to the Bitcoin forever.

What makes the auction of Bitcoin interesting is that Bitcoin is not something like a car or a piece of jewelry that can be sold for a certain amount and forgotten. Bitcoin has the potential to keep rising in value. Maybe that is why it is estimated that there are more than $1 billion worth of cryptocurrencies still being held by the US government today.

Can you imagine what would happen if the government were to try to sell all of its Bitcoin in a standard marketplace like a cryptocurrency exchange? The market would be diluted and the price of Bitcoin could take a massive drop. Maybe the government knows this and that is why they do not choose to liquidate all of the crypto at once, but maybe they have other reasons for holding it.

When seized Bitcoin is auctioned off it is usually done so with a sealed bid. Many such auctions have taken place all over the world. In Australia there was an auction of 24,000 BTC in 2017, and Bulgaria conducted a similar auction in 2018 of 213,000 BTC! These are staggering amounts that are rarely reported on mainstream cryptocurrency websites.

At some point perhaps there will be more transparency about Bitcoin and what happens to it when the authorities seize the tokens. Until then we can only guess where all of that Bitcoin goes.

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