[Guest Blog] US Marshal Bitcoin Auctions – The Kiss of Devaluation

It’s like a bad TV rerun replayed all over again. The US Marshal Service (USMS) plans to blind auction 50,000 bitcoin by email. Yes, that is FIFTY THOUSAND BTC. And it’s only about a third of their seized assets in the Silk Road 1 case – they still have 94,000 BTC left to dump – not including Silk Road 2.

You can calculate an up to the second value for 50,000 BTC by browsing kittybitcoin.com and choosing the currency of your choice. Here’s what 50,000 bitcoin looks like today:

Gross Asset Value of 50,000 BTC
gross asset value 50k BTC-600

 

Other than the author needing a non-student solar powered calculator the obvious fact is this is a LARGE gross asset value, especially for bitcoin, and all at once. Whatever way you slice it, that’s a hefty chunk of coin. But what’s in store for the successful bidders?

Negative karma
I’m not going here, other than to say it exists.

Historically a loss
If you look at the previous USMS bitcoin auction, held on Friday, 27th of June 2014, you’ll see that the price of bitcoin fell sharply in response to the auction – for months not days:

june 27 chartBitstamp.net $BTCUSD price May to October 2014

It took some days for the auction outcome to be made public. The BTC price rose slightly. Then, when the news came out, the graph above resulted. Bitcoin prices tumbled downwards for 3 months.

How much did the USMS winning bidder lose?
If we guess that the winning bid was fair market value – and there is some evidence suggesting it was more than the fair market value – then the buyer’s capital outlay and current loss is:
USMS Silkroad #1 Asset Value

The so-called “winning” bidder has lost $6.3 million dollars of asset value from the date of purchase to today’s bitcoin price. The only possible recovery is a long term investment approach, which has many supporters in the stock markets and elsewhere. Apparently, it is the only hope for the single buyer in the first USMS Silkroad auction. But it’s bitcoin – he does have a fighting chance.

For the next winning bidders of the second USMS bitcoin auction? Expect more of the same.

Increases crime – has opposite of intended effect
There was a lot of social media buzz over the closure of the first Silk Road, a haven of illicit sellers and buyers exchanging illegal products and services with anonymous bitcoin. A lot of buzz centered around how many more players – by the dozens – jumped in to fill the narcotics void, the ensuing loss of high quality narcotic merchandise, increased reliance on shady street dealers, predictably more crime in already rough downtown cores, and more deaths from bad drugs. There isn’t anything good about any of this. So why was the first Silk Road shut down? It seems to have had the opposite of the intended effect.

C’mon, it’s time to actually think about what you’re doing and the effect it will produce, rather than knee jerk a reactionary counter-productive result. The USMS must have been watching too much circa 1800 Western gunslinger TV.

An aside about civil asset forfeiture
With US civil asset forfeiture those authorities who seize profit by law. In at least some US states, if you confiscate money, you get to keep some of it. This is shameful – no government body should profit from its own seizures because it begs for widespread abuse by public authority. We see that now anyway in North America, but why make matters worse?

There was some discussion on reddit bitcoin about how to protect yourself from civil asset forfeiture. One innovative idea was to convert your cash to bitcoin, then burn your bitcoin wallet onto a USB flash drive, then create a hidden root where you stash most of your bitcoin, and put only a little bitcoin in the visible drive.

This approach at least prevents authorities from grabbing your cash and running away with it, which is exactly what recently happened in the US Midwest. Fortunately the victims’ lawyer located the car pullover video – months later. They had been stopped for allegedly failing to signal while making a turn. But it wasn’t fact. So they got their $100,000 cash back. Gamblers going to Las Vegas.

What does the USMS auction mean for holders of bitcoin?
There isn’t any good news here. It’s all bad. There is likely to be another BTC price crash and more downward spiralling. The more bitcoin you hold, the more you stand to lose. It may even be worth considering a temporary bitcoin to gold service prior to the auction, or other transfer to non crypto sources of value. But if most people do this then its still bad news – BTC demand lessens and price goes down.

There is some suggestion that USMS auctioning off such a large amount of bitcoin in one fell swoop is not only irresponsible, but foreseeably harmful. As such, it could even lead to litigation.

Remedial Options?
There is no BTC reason to support the USMS auction. No good can come of it. Only more of the same. Here’s a few thoughts for alternative remedies for the USMS bitcoin auction:

(1) Class action
Crowdsource a legal fund for bitcoin class action against the involved parties.

(2) Litecoin bids
If you must bid on the auction, only submit a litecoin and extremely low value bid. The bitcoin community should rally and put a stop to actions which harm the bitcoin ecosystem.

(3) Boycott
Why support reactionary, counter-productive behavior? Just boycott the auction entirely. What will the USMS do with 50,000 BTC they can’t sell? Maybe they’d buy lumber and materials to build homes for the tens of thousands of homeless living in tents, under trees and in dumpsters in sub zero weather. Or maybe just feed them?

Maybe the reader can think of other approaches – you’re invited to share your thoughts below. But one thing is certain. The USMS behavior and bitcoin auctions have done and will do more harm than good.

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