Image from “Infrogmation of New Orleans” via, cropped to the format of the cover image. License:Creative Commons

Is this the reason why the price collapsed? The US government has sent Bitcoins it confiscated in connection with Silk Road to an exchange. But more Bitcoins are threatening to flood into the market.

If you’re looking for a reason why the Bitcoin price has fallen sharply since April 1st – namely by almost 5,000 euros, from almost 66,000 to just over 61,000 euros – then you might find it in the American government.

A wallet that apparently belongs to the US government and stores Bitcoins confiscated from Silk Road became active and sent 31,799.9891 Bitcoin – more than $2 billion.

The US government confiscated the Bitcoins at the end of 2022. It found them in the house of James Zhong, who had defrauded the darknet market Silk Road of a then manageable sum in 2012. After trying to cover up his tracks, he hid the 50,000 coins mostly in paper wallets in his house, such as a popcorn tin in the bathroom.

Of the almost 32,000 Bitcoins that the US government sent yesterday, 2,000 now flowed to the Coinbase exchange, while the remaining 26,799 coins went back to a government wallet.

This is not the first time that the USA has liquidated coins from this confiscation. As early as March 2023, she sold almost 10,000 Bitcoin for $216 million at the time. Unlike before, when confiscated Bitcoins were auctioned off, the government now appears to be liquidating them directly on the regulated exchange Coinbase.

On the occasion of the March 2023 sale, the government announced that it planned to sell the remaining 41,490 Bitcoins in four tranches over the course of the calendar year. However, this apparently only happened with some of the coins, as the government is now still sitting on around 30,000 Bitcoins.

Could it be that the government itself was too bullish to sell? Did people in government possibly sense that Bitcoin ETFs were due for approval in early 2024 and that this would further increase the price? Or perhaps people have realized that Bitcoin is too important for a country like the USA – especially for them – to simply be sold like that?

Be that as it may, the government’s sale of 2,000 Bitcoins may have depressed Bitcoin’s price in the short term. One can gladly rule out a significant influence on price events.

However, one could speculate about the significance of the fact that the US government did not sell the confiscated Bitcoins in 2023 as announced. Is it a good thing because she seems to be holding onto her Bitcoins more decisively than she intended? That she is a better holder than Elon Musk? Or is it bad because there are still around 30,000 Bitcoins waiting to come onto the market even though they should have been sold and digested long ago?

Ultimately, it is unlikely to be of outstanding relevance in either respect. Bitcoin miners currently produce 900 Bitcoins per day; after the halving in late April there will be 450 more. This means that the 2,000 Bitcoins that the government has now sold correspond to a good two days of production by the miners, or roughly the amount that the miners produce less over the course of two and a half months after the halving. That’s not a small thing, but it’s not all that important either.

But since further liquidations could still be pending, the Bitcoins in the US government wallet could be part of a possible selling pressure that hangs over the market like a sword of Damocles. For example, the Federal Criminal Police Office has 50,000 Bitcoins through Saxony’s access to a file sharer’s wallet, and the liquidator of the Mt. Gox exchange, which went bankrupt in 2014, may pay out the remaining 142,000 Bitcoins to users this year. Together this creates a mass capable of crushing even the most brilliant rally.

And you should at least keep that in mind.


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