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The US federal government has once again added to its large stash of Bitcoin, transferring $922 million worth of wallets linked to Bitfinex hackers in a seizure.
Over the course of a series of various seizures and other asset seizures, the United States federal government has accumulated and holds enough Bitcoin to undoubtedly be considered one of the largest whales. In the early days of the Bitcoin scene, an overwhelming anarchic spirit among the community led to a series of various illegal trading ventures, the most famous of which is the Silk Road. This overtly illegal era of the industry is more or less over, but the success of these early projects led to the accumulation of massive amounts of Bitcoin: which the US government accumulated over time.
The Silk Road alone has been the center of several massive seizures by law enforcement agencies, though the actual site's vaults are far from the only source. On multiple occasions over the past few years, many of the hackers who stole Silk Road have in turn seen their assets confiscated and added to the federal government's massive stockpile. Although hundreds of millions of bitcoins from this source have already been sold at government auctions or through other means, there are still billions remaining. For their part, law enforcement agencies appear to be in no hurry to wash their hands of these assets.
On February 29, the stock grew again when the government transferred more than 15,000 bitcoins from the wallets of two Bitfinex hackers. Hackers Ilya Lichtenstein and Heather “Razlikhan” Morgan recently testified about their 2016 hack of Bitfinex, which ranks as one of the most profitable heists ever with nearly 120,000 bitcoins stolen. Bitfinex, one of the oldest exchanges still operating in the entire cryptocurrency ecosystem, remains a prominent service, but its operations still bear lingering scars from a theft of this scale. For one thing, US citizens are completely blocked from accessing the platform, along with citizens of several other countries. Perhaps that's why the Justice Department declined to say whether or not the government intends to compensate Bitfinex's 2016 customers, whose money was actually stolen.
Regardless of the government's plans for these funds, a seizure like this has once again highlighted the massive size of the federal government's Bitcoin reserves. Fortunately, the government's dealings with these assets are all a matter of public record, and Bitcoin transactions themselves are all completely transparent on the blockchain. For this reason, analysts are confident in the claim that the United States owns nearly 200,000 bitcoins, worth about $12.1 billion. This undoubtedly makes it one of the largest whales out there, with only Binance and Satoshi holding larger amounts. In fact, the government currently owns roughly 1% of all Bitcoin in circulation. Regardless of claims that prosecutors have no interest in maximizing profits when disposing of these assets, it is undeniable that the government has significant influence over the entire field.
These seizures are particularly interesting because of some recent comments made by exiled whistleblower Edward Snowden. Specifically, given the growing global acceptance of Bitcoin in regulation and traditional finance, Snowden predicted that “it will be revealed this year that a national government has purchased Bitcoin – the modern alternative to fiat gold – without publicly disclosing that fact.” If Bitcoin is digital gold, it makes sense that powerful countries would want to build reserves. This strategy has famously worked for Salvadoran President Nayib Bukele, who greeted the new bull market by announcing that his country's investment in Bitcoin had risen by 40% since initial purchases. Not, of course, that he plans to sell.
However, Snowden's comments seem particularly relevant because the United States has not actually purchased any of the Bitcoin it currently holds. Although the government has theoretical responsibility for disposing of these assets, the pace has been slow so far, and in the meantime, it would be very easy for Congress to stop these sales. All it takes is a willingness to change policy, and a real Bitcoin reserve could emerge overnight. This is the essence of Snowden's specific prediction that governments will secretly acquire Bitcoin and that the government has a high degree of plausible deniability. We don't have a reserve. We just happen to be holding these assets to sell later. There is nothing fishy about that!
If the government really wanted to secretly acquire massive amounts of Bitcoin, it would face a slew of transparency problems stemming from the trustless nature of Bitcoin's blockchain. The anonymous “Mr. 100” made headlines throughout February, gaining an astonishing 100 bitcoins per day and reaching the 15th largest whale spot. As chain analysts tried to identify the buyer, speculation was already beginning that the national government was the culprit. Timing of purchases and several other factors, the buyer is likely to be in Asia, specifically the Middle East, Qatar, the United Arab Emirates, and Saudi Arabia – all of these are strong candidates to be the legal owners of the coins.
In other words, if the government wants to build up a Bitcoin reserve, it may be easier to seize the assets outright rather than buy them at fair value. After all, if transactions are going to be recorded on the blockchain either way, why shouldn't they save their money? The UK appears to be as well placed to build stockpiles in this way as the Americans, having confiscated $1.77 billion in January. Not only were these bitcoins seized from a currently fugitive foreign national, with no recourse to recover these funds, but the British government later passed legislation deepening its power to seize or freeze crypto assets. It won't take much to start building a noticeable treasure trove in itself.
By this point, the days when the Bitcoin core community took a defiant stance toward law enforcement were a distant memory. Although people can commit crimes centered around Bitcoin just as they would with any other currency, the fact of the matter is that Bitcoin is becoming more legitimate for the world's governments. US regulators have approved a Bitcoin exchange-traded fund, and other countries are falling like dominoes to endorse it themselves. Ultimately, it will be necessary for powerful governments to remain on equal footing with their competitors and maintain their own Bitcoin reserves. The United States controls approximately 1% of a huge industry and has a great deal of influence over it. Will these countries be the only countries that enjoy this influence? It may be difficult for any country to build these stocks secretly, but nevertheless the race has already begun. No matter who wins it, Bitcoin will ultimately come out on top.
