Silk Road: Bitcoin seized by the FBI now for sale

The government of the United States of America has decided to sell the Bitcoins seized thanks to the FBI to two drug dealers who used Silk Road. 

The amount that will be auctioned seems substantial (117 million dollars), but in BTC it is not very high. 

FBI and Silk Road’s Bitcoin 

The seizure of Bitcoin took place in 2021, three years after the disputed events and a full seven years after the permanent closure of Silk Road. 

Silk Road was a website for anonymous commercial exchanges on the dark web, which used Tor to hide from authorities. In this way, it could host various contraband or even illegal products for sale, such as drugs. It was even referred to as the “Amazon of drugs”.

The first closure of the site was imposed by the FBI in October 2013, during the Bitcoin bull run (the first major BTC bull run), but in November the site was reopened.

The final closure only took place in November 2014. 

In order to avoid payments being traced by authorities, many of the illegal products purchased on Silk Road were paid in Bitcoin, also because there were very few cryptocurrencies at that time: the first true privacy coin, Monero, was launched in 2014.

For the sales of illicit products, Silk Road creator Ross Ulbricht was sentenced to life imprisonment in 2015. 

The seizure of BTC

In February 2021, the Drug Enforcement Administration (DEA) of the US Department of Justice seized 2,875 Bitcoin from Ryan Farace. 

Farace was actually already in prison since 2018, when he was arrested by the FBI for drug trafficking. 

Ryan Farace was better known by the pseudonym Xanaxman, because he illegally sold a form of the anxiolytic Xanax, Alprazolam, on the dark web. One of the channels he used was Silk Road, and one of his preferred means of payment was Bitcoin.

In November 2018, a court ordered him to give up 4,000 BTC earned in this way, but Farace continued to use them even from prison. 

In February 2021, however, FBI investigations allowed the DEA to seize 2,875 BTC from him, and in May another 59 BTC. 

FBI: the sale of Bitcoin seized from Silk Road

Now, after almost three years, a court has finally authorized the sale of the seized Bitcoins to Farace. 

The BTC will be sold at auction, using the usual procedure adopted in these cases. 

At the time of the court notification (January 8th), the total of 2,934 BTC had an overall market value of nearly $130 million, while now they would be worth about $117 million. 

The amount may seem high, but 2,934 BTC for sale is not a lot. It is enough to say that starting from January 11th, the new Grayscale Bitcoin ETF (GBTC) has already liquidated almost 110,000 BTC, causing a price drop of only 15%.

However, it should be noted that a significant portion of the Bitcoins sold by Grayscale’s ETF have been absorbed by other new Bitcoin ETFs launched simultaneously in the USA.

Furthermore, since the sale of the 2,934 BTC will not take place on exchanges, but through a direct auction, it will not have an immediate impact on the market. The impact will be indirect because those who purchase them at the auction will not be acquiring them on exchanges, and because at some point they may want to sell them on exchanges or OTC platforms. 

In fact, however, almost 3,000 BTC that had been inactive for three years are now back in circulation on the markets, although they are significantly few compared to the 2.1 million BTC currently present on the exchanges. 

Therefore, the impact of this sale on the market value of Bitcoin could be very limited. 

The US Bitcoins

However, a total of almost 70,000 BTC have been seized from illegal activities related to Silk Road, including the 3,000 seized from Farace, and only a small portion will be put up for auction soon.

Actually, according to the information circulating online, the United States Department of Justice may have approximately 215,000 BTC in its treasury, coming from various seizures and not yet sold at auction. 

The data is not precise, but the order of magnitude is plausible.

These Bitcoins will not be sold all together, precisely because for each individual seizure there is a need for a single and explicit authorization from a court in order to proceed with the sale. 

In the specific case of the seizure against Farace, this authorization arrived on January 8th, but we will have to wait a little longer before other sales are authorized. 

It is possible that sales of this magnitude could have an effect on the price of Bitcoin, provided that they are not spread out over many installments over several years. On the other hand, similar sales have already occurred in the past, and they have never been able to reverse the long-term price trend of Bitcoin.