Government auctions off Bitcoins from Silk Road seizure

BY Xander Landen  June 28, 2014 at 4:44 PM EST
SALT LAKE CITY, UT - APRIL 26: A pile of Bitcoin slugs sit in a box ready to be minted by Software engineer Mike Caldwell in his shop on April 26, 2013 in Sandy, Utah. (Photo by George Frey/Getty Images) Photo by George Frey/Getty Images

A pile of Bitcoin slugs sit in a box ready to be minted by Software engineer Mike Caldwell in his shop on April 26, 2013 in Utah. The government recently auctioned off 175,000 bitcoins previously held by the online black market Silk Road. Credit: George Frey/Getty Images

Last fall, when the FBI shut down Silk Road, an online black market that delivered illegal drugs to users’ doorsteps, it also seized a bounty of the digital currency known as Bitcoin.

The Silk Road used Bitcoin to make transactions because it is difficult to trace and allows for quick, seamless electronic transfers.

But since the October 2013 raid  — when site’s operator, Ross William Ulbricht, was arrested — about 175,000 of the site’s Bitcoins have remained in government hands.

In an effort to cash in some of these electronic assets, nearly 30,000 of the Bitcoins, valued by the government at $17.4 million, were auctioned off Friday over a 12-hour period on the U.S. Marshals Service website.

But the U.S. Marshals Service didn’t make it easy to participate in the auction.

The government’s requirements to bid on the Bitcoin included a $200,000 cash collateral and confirmation of the bidder’s identity.

The Bitcoins were also only available for bid in nine “blocks,” each containing about 3,000 units. The government estimated these blocks would sell for about $1.8 million each.

In an interview with Vice News, Mark Williams, a finance professor at the Boston University School of Management, said the U.S. Marshals Office engineered the pool of bidders to be small and wealthy.

“It’s not like stocks and bonds where you have a deep market of buyers and sellers, this is a market where 1,000 people control 50 percent of the coins produced,” he said. “So the U.S. Marshals office is screening out many folks that would typically be available.”

According to a report by the New York Times, in the days leading up to the auction, a list of potential bidders was accidentally leaked — after the U.S. Marshals office had said that no information about bidders would be released to the public.

Bitcoin is currently valued at $595.15 per unit and is climbing upwards after falling by seven percent in reaction to news of the government auction, according to the digital currency exchange Coindesk.com.

In the weeks after Silk Road was shut down, the cryptocurrency hit an all-time high of $1,000.

The U.S. Marshals Service said it will notify the auction’s winning bidders on Monday. It will be up to the winners to reveal their newly-secured investments to the public.