The U.S. Government Hustles in Bitcoin

The U.S. government regularly holds auctions for its stockpile of bitcoin, ethereum, litecoin and other cryptocurrencies it seizes.

This is going to be an Op-Ed on two topics: Will Bitcoin be disrupted? What does the U.S. Government do with the crypto it confiscates?

When cryptocurrencies got into the hands of the financial elite, the crypto movement went from being a decentralized ideal to a ponzi scheme at scale. All those new wallet addresses now simply pad the pockets of those whales who control the stash.

While Bitcoin is a symbol of the digital gold for GenZ and some Millennials, as newer blockchain technologies come out, it and Ethereum could eventually be worth nothing.

Eswar Prasad, senior professor of international trade policy at Cornell University, believes Bitcoin could soon be worth nothing. As you know, Blockchain is the underlying technology behind most cryptocurrencies. It’s essentially a digital ledger of virtual currency transactions which is distributed across a global network of computers.

At the speed of innovation, new ecosystem around blockchain and cryptocurrencies at the intersection of FinTech are likely to “disrupt” the legacy ecosystems and value of the old guard like Bitcoin, Ethereum, XRP, Litecoin, Binance Coin and others.

What’s so bizarre in all of this is the U.S. Government actually has its own stash. The U.S. government regularly holds auctions for its stockpile of bitcoin, ethereum, litecoin and other cryptocurrencies it seizes. For years, the U.S. government has maintained a side hustle auctioning off bitcoin and other cryptocurrencies.

The 500 bitcoin it sold to Riot Blockchain in 2018 for around $5 million? That’s now worth north of $23 million. Or the 30,000 bitcoin that went to billionaire venture capitalist Tim Draper for $19 million in 2014? That would be more than $1.3 billion today.

So how does the U.S. Government get a steady stream of crypto? The government has obtained all that bitcoin by seizing it, alongside the usual assets one would expect from high-profile criminal sting operations. It all gets sold off in a similar fashion.

Uncle Sam usually does the right thing with its private stash though. One of the next seizures up on the auction block is $56 million worth of cryptocurrencies that authorities confiscated as part of a Ponzi scheme case involving offshore crypto lending program BitConnect. Unlike other auctions where the proceeds are redistributed to different government agencies, the cash from this crypto sale will be used to reimburse victims of the fraud.

The seizing of illegal crypto is also big business for Government partners. The government’s crypto seizure and sale operation is growing so fast that it just enlisted the help of the private sector to manage the storage and sales of its hoard of tokens. As BigTech is working more with Government agencies, FinTech is getting more integrated with U.S. Banks, now blockchain cybersecurity is getting in on it as well.

As crypto is starting to be taxed properly in many regions of the world the U.S. stash of seizing crypto is also getting bigger. In recent years, the government has brought back record amounts of crypto. 

“In fiscal year 2019, we had about $700,000 worth of crypto seizures. In 2020, it was up to $137 million. And so far in 2021, we’re at $1.2 billion,” Koopman told CNBC in August. The fiscal year ended Sept. 30.

But the crypto loot pile is becoming a thing. Once a case is closed, the U.S. Marshals Service is the main agency responsible for auctioning off the government’s crypto holdings. To date, it has seized and auctioned more than 185,000 bitcoins. That cache of coins is currently worth around $8.6 billion, though many were sold in batches well below today’s price.

Bitcoin will likely be disrupted for two other reasons than simply being an old tech. Bitcoin “uses a validation mechanism for transactions that is environmentally destructive” and “doesn’t scale up very well”, according to many experts. While Bitcoin is famous for being the original crypto, the days of it being valued more and more (like a ponzi scheme) could be numbered. The profiteers who own it of course don’t want you to know that.

If FinTech and a more decentralized financial system is coming, it must also disrupt Bitcoin, Ethereum and the early players. Blockchain technology is one that has been for over a decade heralded as “fundamentally transformative” in the way that finance is done and in the way we conduct our day-to-day transactions, like buying a house or buying a car.

The way the U.S. Government works with intermediaries to handle its own private stash of seized crypto is also getting more complicated. In July, following a more than yearlong search, the Department of Justice hired San Francisco-based Anchorage Digital to be its custodian for the cryptocurrency seized or forfeited in criminal cases. Anchorage, the first federally chartered bank for crypto, will help the government store and liquidate this digital property. The contract was previously awarded to BitGo.

The Auctions it does at “fair market value” is actually stoking the ponzi scheme element of crypto that benefits the financial elite and increases wealth inequality, not contributing to decentralization or fairness in our current financial system.

The system appears to be very easy to abuse, if there was any corruption in Government. Once a case is closed and the crypto has been exchanged for fiat currency, the feds then divvy the spoils. The proceeds of the sale are typically deposited into one of two accounts: The Treasury Forfeiture Fund or the Department of Justice Assets Forfeiture Fund. 

Another main reason Bitcoin and Ethereum will be disrupted is they are so volatile they won’t be proper mediums of exchange. Given that bitcoin is not serving well as a medium of exchange, I agree with analysts that I don’t think it’s going to have any fundamental value other than whatever investor’s faith leads it to have - sentiment bias- based on the idea that these things are revolutionary when better things will juts come along soon.

This is hard or painful for some people to understand who buy into crypto’s somewhat dubious narrative.

When you have the Bitcoin ponzi scheme and the Fed QE manipulation ponzi scheme both boosting the profits of the world’s most financial elite, you have a system of capitalism that has broken down nearly entirely.

If crypto was supposed to decentralized finance and opportunity in Capitalism, it may be doing actually the exact opposite, simply exasperating the centralization of the world’s wealth in an acceleration period of wealth inequality. Again it’s possible the Bitcoin whales, including the U.S. Government, don’t want you to know that.