U.S. Federal Government Holds Massive Bitcoin Stash Amidst Price Rocket

New data shows how the federal government has accumulated billions of dollars worth of bitcoins over the years. As it plans and executes more sophisticated sales worth hundreds of millions, bitcoiners

From years of various seizures and confiscations, the U.S. government has become one of the world’s largest holders of Bitcoin, with its 200k bitcoins worth more than $5 billion.

Throughout the many years of Bitcoin’s ascendancy into a worldwide phenomenon, its millions of supporters have had extremely diverse backgrounds and viewpoints, even as they have all been united in the pursuit of a worldwide decentralized currency. Among this cohort, naturally, there have been a few criminals. Even now in October 2023, new details are still coming to light about the prosecution of Bitcoin-related crimes that took place more than a decade ago. Jimmy Zhong, who was finally sentenced to prison this year, was convicted of stealing some 50k bitcoin from the now-defunct Silk Road in 2012. The government has long since confiscated his bitcoin, but many of them essentially remained frozen as the legal battle proceeded. Obviously, during a decade, this bitcoin has accumulated tremendous value.

It must be remembered, however, that this particular example is one of many, and a very early one at that. Over the years, it has come to light that the federal government has accumulated a massive stockpile of bitcoin, approximately 200,000. It seems that the presence of red tape has been a surprising aid in profit for the government’s “investment”, as lengthy trials have only led to a complicated asset liquidation process. In short, it costs the government nothing to keep these bitcoin in the wallet of an incarcerated person, or else hold them directly, often for years at a time. All the while, growth for Bitcoin has been rocketing at unbelievable rates. Jared Koopman, executive director of the IRS’s cyber and forensics services section, denied any deliberate strategy when he claimed to the Wall Street Journal that “We don’t play the market. We basically are set by the timing in our process”. 

That may be the case so far, but the way that the government has sought to profit off of this bitcoin has grown more sophisticated over the years. For example, federal agencies would initially sell these coins at an auction to interested buyers, selling confiscated coins tens of thousands at a time in 2014. However, since a pilot attempt by the Marshals Service in 2021, they have switched to directly selling on exchanges. Even as the government paid service fees that were derided as extortionary, it has still netted hundreds of millions from its repeated sales, with no sign of stopping. In a particular irony, one federal agency can even use an exchange to sell off these assets, while a different agency can open a lawsuit against it soon after! If this dynamic was abused, it could create a tidy revenue stream.

It’s in this light that the bitcoin community has been asking itself one question: What happens if the US government enters the space in a more major way? Obviously, federal agencies have no interest in practically adopting a currency that is in any way free of state control. El Salvador famously is the only world nation to accept bitcoin as legal tender, and part of the motivation for this move was explicitly to undermine the hegemony of the dollar. Although the United States may not believe in the mission of Bitcoin, it doesn’t change the fact that it is currently one of the largest whales in existence. And whales, historically, have had a tremendous impact on bitcoin’s price fluctuations.

Just consider the state of the markets today, and a simple thought experiment. What would it look like if the federal government started acting more deliberately like a Bitcoin whale, maximizing its gains and attempting directly to influence the price of its assets? By making its liquidation process more sophisticated, it has already made the first step in becoming a robust bitcoin-selling machine. And the market these days is active and volatile, full of opportunities to act. For example, as bitcoin miners worldwide have been preparing for the next halving, Bitcoin’s hashrate has been exploding for more than a year. Even now, it continues to reach new heights of productivity.

All these miners have been preparing for the halving, consolidating and modernizing their equipment and facilities while even preparing political efforts. And in this ecosystem, the government has planned to sell off assets worth hundreds of billions. How many individuals controlling these sales would really be necessary to take some deliberate action? How difficult would it really be, when the halving sends shockwaves through the entire space, for a federal agency to make a few big sales that cause a crisis of confidence? Even if it sells at a loss relative to 2024’s prices, these will dwarf the massive gains these assets have gained over the years. More to the point, the government has sat on these assets for years at a time! A prolonged bear market could push firms all over the world to the absolute brink, and federal agencies already are fighting legal battles against some of the world’s largest crypto exchanges. If assets were seized in the middle of a bigger collapse, the government could sit on them for years, and see astronomical gains.

The government would also have options to see the continued rise of Bitcoin in the immediate future, too. In the prolonged fight to win regulatory approval for a Bitcoin ETF, the community is generally convinced that the victory is close at hand. The SEC’s arguments against the ETF have failed to convince the U.S. Court of Appeals, and the markets have been salivating. The mere rumor of regulatory success has led bitcoin to appreciate several thousand dollars in value in a few days, and the actual approval will be an explosion. What would happen if these approvals became more common? It wouldn’t take a true Bitcoiner, only someone convinced that a growing industry will help America. A few years ago, it was unimaginable that those seized assets would be worth billions some day. What could we imagine for the future?

The purpose of this hypothetical has not been to seriously make the case that a massive reorientation towards Bitcoin will take place. Even if the value of this Bitcoin hoard were doubled, ten billion dollars is small change compared to the U.S.’ GDP of $23 trillion. However, anyone in this space should appreciate the sheer power that exists when the buying and selling power of a whale is combined with the power to materially put a thumb on the scale. How many people would it really take? If someone with power at one of these federal agencies wished to carry out a deliberate plan, how hard would it really be? Even if a functionary earns the same salary whether the bitcoins sell at a high price or a low, they would certainly be interested in winning as many cases against “crypto criminals” as possible. And all those criminals would see their assets added to the pile.

In short, the main concern is that the existence of sums of money like this is an organizing principle all in itself. The federal government holds massive power, when considering its ability to wage war or impact global trade. But the economic stakes of Bitcoin hold huge power as well, the power to sway people at all levels of these bureaucracies. For a normal whale, selling hundreds of millions would be a very dramatic event, intended to ripple out across the whole space. But for this particular whale, it’s only a scheduled liquidation in a long backlog of government property. It would only take a little pushing to make ripples of their own. Nobody involved would have to truly believe in replacing the dollar, or a trustless world economy. They’d just have to understand that the rise of Bitcoin, so far, has been very good for business.