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Sale Of Bitcoin Seized From Silk Road Readied For Auction

Posted by: : Paul EbelingPosted on: June 29, 2014 Sale Of Bitcoin Seized From Silk Road Readied For Auction

Sale Of Bitcoin Seized From Silk Road Readied For Auction

Since last fall, the US government has been trying to figure out how it can sell the Bitcoins it siezed in the Silk Road raid it for the maximum amount

The US government is responsible for selling property taken from criminals, including cars, yachts and fine jewelry. But Bitcoin, a computer-driven virtual currency that exists entirely online, is not the same.

If the government put all the digital currency on the open exchanges where Bitcoins are bought and sold, it could depress the price.

Instead, the United States Marshals Service has arranged an online auction for nearly 30,000 of  Bitcoin it seized from the now-defunct Silk Road market, which federal prosecutors shuttered last October, and have accused of aiding the sale of illegal drugs, goods and services.

Experts differ on whether an auction many Bitcoins will push the price down.

The Fed’s auction’s setup has been an opaque haphazard process. On 18 June 18 in an email from the US Marshalls Service leaked a ‘confidential’ list the names of the auction bidders. That after  it said that it would not release any information about the bidders or winning bids.

The US government has provided a few details about its auction process.

Bidders had a 12-hr window Friday to submit one sealed bid for the coins, which have been broken up into lots of 3,000. The winners will be notified on Monday. Just about 20% of the Bitcoins that were seized from Silk Road will be auctioned, thus providing a test run if the government decides to sell the rest.

The authorities are concerned with Bitcoin’s potential to be used for illegal activity, and the agency screened all potential bidders.

Bidders had to prove their identities and that they had at least $200,000 in cash, and were required to certify that they were not affiliated with Silk Road or its founder, Ross Ulbricht.

For the bidders, the government auction process was less transparent, apparently to privacy and security measures that the Marshals Service had to take in this case involving complex assets.

The accidental release of Bitcoin bidders names, could affect how much money the government raises from what it hopes will  be an efficient auction.

In the days after the ‘names’ leak, people on the recipient list exchanged emails with one another, turning what should have been an anonymous communication into an open forum. “The leak has definitely changed the dynamics,” said the CEO of the Bitcoin Shop, whose name was on the list.

The US Marshals Service made it clear publicly that the clumsy leak was unintentional.

About Bitcoin

Bitcoin, created by an anonymous computer programmer, or group of programmers during the Y 2008 financial the financial crisis. It appealed to an anti-establishment following that liked the idea of avoiding the banking system and government regulation.

Users can either buy Bitcoins from one another or mine them by solving complicated mathematical algorithms. Since Bitcoin 1st appeared online in Y 2009, the price has fluctuated from a few pennies to over a $1,000/ea at its peak. The programmers intended to create a finite number of Bitcoins, which could make acquiring large quantities difficult.

Over the years, however, Bitcoin has reached a broader audience due to the backing of technologists, venture capitalists financing, and retailers accepting payment in Bitcoin.

About the US Marshals Service Bitcoin Auction

The US Marshals Service hopes to tap into Bitcoin’s backing at its auction. Because of some of the missteps and the unprecedented nature of the auction, estimating how much the government will raise is difficult. The Marshals Service often conducts sealed-bid sales, but auction experts say that can discourage bidders from participating.

Some bidders have said that their strategy relied more on game theory than financial analysis. But game theory, in which players size up one another knowing that their opponents are doing the same, is much harder when the game is a secret.

Because participants in the auction will not know the size of the bidding pool, they are likely to bid cautiously, said an auction theory expert. Bidders might be willing to pay a premium to acquire a big lot of Bitcoins.

Because of Bitcoin’s volatility and lack of historical data, it is difficult to compare the auction of Bitcoin to the auction of financial instruments that trade openly.

 Bitcoin price stood at around $600 Friday, and will likely anchor auction  bids.

The next move in Bitcoing price could be triggered by the US government’s auction, the Winklevoss Brothers bringing Bitcoin to the NAS Stock Market, or by the SecondMarket Bitcoin Investment Trust and Wall Street dollars. But wherever the money it comes from, the charts are Bullish Bitcoin.

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Stay tuned…


Paul Ebeling

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Paul Ebeling

Pattern Recognition Analyst, equities, commodities, forex
Paul Ebeling is best known for his work as writer and publisher of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly-regarded, weekly financial market letter, where he enjoys an international audience among opinion makers, business leaders, and respected organizations. Something of a pioneer in online stock market and commodities discussion and analysis, Ebeling has been online since 1994. He has studied and worked in the global financial and stock markets since 1984.

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