The largest-ever seizure of cryptocurrency by the U.S. government has worked out to be a windfall for taxpayers.
At issue are thousands of bitcoins seized in November 2020 in connection with the illegal Silk Road marketplace, a dark web forum on which drugs and other illicit products were bought and sold with the digital currency.
The bitcoins are still in the government’s possession, for bureaucratic reasons. And in the year since, bitcoin has tripled in price.
So what was once worth $1 billion is now worth around $3 billion.
That’s down a bit from when bitcoin was at its all-time high of $67,000 last month. But with bitcoin hovering at around $55,000 — up from roughly $18,000 in November 2020 — Uncle Sam has still done pretty well.
The government will auction off the bitcoins, a spokesperson for the Internal Revenue Service told NBC News. The proceeds of such auctions are typically deposited into the Treasury Forfeiture Fund or the Department of Justice Assets Forfeiture Fund, and used to support future investigations.
Most of the government’s handling of cryptocurrency has been far less remunerative. In fact, it’s mostly a story of lost opportunities.
The U.S. Marshals Service says it has sold off 187,381 bitcoins in nine auctions since 2014. A spokesperson declined to provide the sums of money involved, but based on the price of bitcoin on the day of each sale, NBC News estimated the total take would have been around $179 million.
At today's price, those coins would fetch more than $10 billion — nearly 56 times as much.
In its first seizure related to Silk Road in 2014, the government grabbed 29,657 bitcoins and sold them for around $18 million. Today, it would be worth more than $1.6 billion.
In those days, it wasn’t easy to sell Bitcoin, a digital currency created with blockchain technology and stored in so-called digital wallets. The government was worried there would be no buyers, said Sharon Cohen Levin, who led the Money Laundering and Asset Forfeiture Unit in the U.S. Attorney’s Office for the Southern District of New York for two decades.
“It was crazy difficult, in terms of figuring out how to do it,” she said.
In hindsight, simply storing the bitcoin would have reaped a fortune, but for better or worse, the government is not in the business of holding cryptocurrency for investment purposes.
Silk Road was an anonymous marketplace for criminal activity. Its founder, Ross Ulbricht, was sentenced to life in prison in 2015 after being convicted of money laundering and drug trafficking charges.
The seizure of $1 billion last year came after the IRS used software company Chainalysis to identify 54 previously undetected bitcoin transactions executed by Silk Road, the IRS said.
These funds were traced to a bitcoin address, court records say, owned by an unidentified person who is alleged to have hacked into Silk Road and stolen the money.
“Pursuant to that investigation of the hack, law enforcement seized several thousand Bitcoins on November 3, 2020. On November 4, 2020, the seized Bitcoin had a value of over $1 billion,” the complaint says.
And now, it’s worth a lot more.