The US government auctions Bitcoin: attracting a large number of players

Despite the frequent ups and downs in the value of Bitcoin, many buyers on Wall Street and Silicon Valley are lining up to bid for the approximately $17 million worth of Bitcoin that the U.S. government is about to auction.

Auctions

The auction, run by the US Marshals Service, is scheduled for June 27. San Francisco hedge fund Pantera Capital Management and New York brokerage firm SecondMarket are among the bidders.

"I know a lot of investors, both large and small, are discussing this opportunity," said Jaron Lukasiewicz, CEO of New York-based bitcoin exchange Coinsetter. "There may be some hidden players -- hedge funds looking at this market."

The 29,656 bitcoins auctioned this time are part of the 144,000 bitcoins that the FBI seized last year after shutting down the Silk Road website and arresting its operator. The FBI has handed over all of these bitcoins to the U.S. Marshals Service. Since the liquidity of major bitcoin exchanges is low, trading just 500 bitcoins will change the price, so buying bitcoins directly from the government can avoid paying a high price.

"If investors wanted to buy so much bitcoin from the open market at one time, just submitting a transaction application would push up the price of bitcoin by 10% to 20%," said Gil Luria, an analyst at Wedbush Securities.

Government sell-off

Mark Williams, a lecturer at Boston University who once worked as a bank auditor, said that Pantera and SecondMarket are both for speculation. They are not new buyers but the same group of promoters as before.

"This auction doesn't prove the value of bitcoin, it just proves that the U.S. government is eager to sell before the price drops again," Williams said. "The U.S. Marshals Service has 29,000 reasons to sell these bitcoins."

Bidders will need to pay a $200,000 deposit and undergo identity verification. The U.S. Marshals Service will notify the winning organization on June 30. The agency may sell more bitcoins in the future.

Rising and falling

The documents unexpectedly released by the U.S. Marshals Service showed that Connecticut hedge fund Rangeley Capital and Chicago trading firm DRW Holdings were both interested in participating in the auction. The two companies declined to comment further.

SecondMarket, which specializes in handling illiquid assets, has launched a trust fund that allows people to buy Bitcoin indirectly. SecondMarket began raising funds for the trust in September last year, and the trust has reached $62.5 million so far. They also plan to open the trust to small investors.

Due to the hype of technicians and speculators, the value of Bitcoin soared from US$12 to US$1,147 in 2013, and then plummeted under the suppression of regulators in China, Russia and other places. The current latest price is US$562.39.

Pantera CEO Dan Morehead said the company will participate in the auction. Although he declined to disclose specific strategies, Morehead said in an interview that the company will buy Bitcoin and invest in companies that build infrastructure for it. "This virtual currency ecosystem contains a whole set of opportunities," Morehead said.